Mid-caps stocks, like Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) with a market capitalization of US$2.1b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. MDGL’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MDGL here.
Can MDGL service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For MDGL, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with MDGL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can MDGL meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Madrigal Pharmaceuticals has no solvency issues, which is 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. With current liabilities at US$8.4m, the company has been able to meet these commitments with a current assets level of US$485m, leading to a 57.46x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high.
MDGL has no debt as well as ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, though, some degree of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how MDGL has performed in the past. I recommend you continue to research Madrigal Pharmaceuticals to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDGL’s future growth? Take a look at our free research report of analyst consensus for MDGL’s outlook.
- Historical Performance: What has MDGL’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.
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