Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Exact Sciences Corporation (NASDAQ:EXAS), with a market cap of US$8.50b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine EXAS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Exact Sciences’s financial health, so you should conduct further analysis into EXAS here. Check out our latest analysis for Exact Sciences
How much cash does EXAS generate through its operations?
Over the past year, EXAS has ramped up its debt from US$4.81m to US$5.75m , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$424.72m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of EXAS’s operating efficiency ratios such as ROA here.
Can EXAS meet its short-term obligations with the cash in hand?
Looking at EXAS’s most recent US$68.12m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$487.22m, with a current ratio of 7.15x. However, anything about 3x may be excessive, since EXAS may be leaving too much capital in low-earning investments.
Can EXAS service its debt comfortably?
With a debt-to-equity ratio of 71.67%, EXAS can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since EXAS is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
EXAS’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how EXAS has been performing in the past. You should continue to research Exact Sciences to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EXAS’s future growth? Take a look at our free research report of analyst consensus for EXAS’s outlook.
- Valuation: What is EXAS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether EXAS is currently mispriced by the market.
- 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.