Stocks with market capitalization between $2B and $10B, such as GW Pharmaceuticals plc (NASDAQ:GWPH) with a size of US$5.0b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. GWPH’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of GW Pharmaceuticals’s financial health, so you should conduct further analysis into GWPH here.
Does GWPH Produce Much Cash Relative To Its Debt?
Over the past year, GWPH has reduced its debt from US$18m to US$5.7m – this includes long-term debt. With this reduction in debt, GWPH currently has US$591m remaining in cash and short-term investments , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of GWPH’s operating efficiency ratios such as ROA here.
Can GWPH meet its short-term obligations with the cash in hand?
With current liabilities at US$66m, the company has been able to meet these obligations given the level of current assets of US$647m, with a current ratio of 9.77x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Is GWPH’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that GW Pharmaceuticals has virtually no debt. This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with GWPH, and the company has plenty of headroom and ability to raise debt should it need to in the future.
GWPH’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how GWPH has been performing in the past. I recommend you continue to research GW Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GWPH’s future growth? Take a look at our free research report of analyst consensus for GWPH’s outlook.
- Valuation: What is GWPH 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 GWPH 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.