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$3.1b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine MDGL’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 Madrigal Pharmaceuticals’s financial health, so you should conduct further analysis into MDGL here.
Does MDGL face the risk of succumbing to its debt-load?
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.
Does MDGL’s liquid assets cover its short-term commitments?
Since Madrigal Pharmaceuticals doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at MDGL’s most recent US$5m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 90.37x. However, anything above 3x may be considered excessive by some investors.
MDGL has zero-debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for MDGL’s financial health. Other important fundamentals need to be considered alongside. You should 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.
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 email@example.com.