Stocks with market capitalization between $2B and $10B, such as Exact Sciences Corporation (NASDAQ:EXAS) with a size of US$8.4b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at EXAS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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.
Does EXAS produce enough cash relative to debt?
EXAS has built up its total debt levels in the last twelve months, from US$6.1m to US$681m , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.2b for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of EXAS’s operating efficiency ratios such as ROA here.
Can EXAS pay its short-term liabilities?
At the current liabilities level of US$107m, the company has been able to meet these commitments with a current assets level of US$1.3b, leading to a 12.08x current account ratio. Having said that, a ratio greater than 3x may be considered high by some.
Is EXAS’s debt level acceptable?
With a debt-to-equity ratio of 95%, 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. But 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.
Although EXAS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. 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 mid-cap 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.
- Historical Performance: What has EXAS’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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.