Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Madrigal Pharmaceuticals Inc (NASDAQ:MDGL), with a market cap of US$4.51b, often get neglected by retail investors. 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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MDGL here. Check out our latest analysis for Madrigal Pharmaceuticals
Can MDGL service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For MDGL, the debt-to-equity ratio is zero, meaning that the company has no debt. It has been operating its business with zero debt and utilising only its equity capital. 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 pay its short-term liabilities?
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$6.29m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 29.11x. Though, a ratio greater than 3x may be considered as too high, as MDGL could be holding too much capital in a low-return investment environment.
MDGL has no debt in addition to ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some level 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 suggest you continue to research Madrigal Pharmaceuticals to get a more holistic view 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.