Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Sage Therapeutics, Inc. (NASDAQ:SAGE), with a market capitalization of US$8.1b, rarely draw their attention from the investing community. 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. This article will examine SAGE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SAGE here.
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. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Sage Therapeutics, investors should not worry about its debt levels because the company has none! 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 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$86m, it appears that the company has been able to meet these commitments with a current assets level of US$945m, leading to a 10.98x current account ratio. However, many consider a ratio above 3x to be high.
SAGE 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 may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure SAGE has company-specific issues impacting its capital structure decisions. You should continue to research Sage Therapeutics to get a better picture 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.
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