Mid-caps stocks, like Sage Therapeutics Inc (NASDAQ:SAGE) with a market capitalization of US$7.16b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. SAGE’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 SAGE here. See our latest analysis for Sage Therapeutics
Does SAGE face the risk of succumbing to its debt-load?
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. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For SAGE, 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 SAGE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can SAGE pay its short-term liabilities?
Since Sage Therapeutics 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. With current liabilities at US$37.87m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 28.92x. Though, anything about 3x may be excessive, since SAGE may be leaving too much capital in low-earning investments.
SAGE has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, though, some degree of debt may also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how SAGE has performed in the past. I suggest you continue to research Sage Therapeutics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SAGE’s future growth? Take a look at our free research report of analyst consensus for SAGE’s outlook.
- Valuation: What is SAGE 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 SAGE 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.