Bio-Path Holdings Inc (NASDAQ:BPTH), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is BPTH will have to follow strict debt obligations which will reduce its financial flexibility. While BPTH has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess BPTH’s financial health. View out our latest analysis for Bio-Path Holdings
Is BPTH growing fast enough to value financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. BPTH’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. BPTH delivered a strikingly high triple-digit revenue growth over the past year, so it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.
Can BPTH pay its short-term liabilities?
Since Bio-Path Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$929.00k liabilities, the company has been able to meet these obligations given the level of current assets of US$5.87m, with a current ratio of 6.32x. Though, a ratio greater than 3x may be considered as too high, as BPTH could be holding too much capital in a low-return investment environment.
BPTH is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, BPTH’s financial situation may change. I admit this is a fairly basic analysis for BPTH’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Bio-Path Holdings to get a better picture of the stock by looking at:
- Historical Performance: What has BPTH’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.