Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is SNDX will have to follow strict debt obligations which will reduce its financial flexibility. While SNDX has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will take you through a few basic checks to assess the financial health of companies with no debt.
Does SNDX’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on SNDX’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if SNDX is a high-growth company. SNDX’s revenue growth over the past year is an impressively high double-digit 91%. Therefore, the company’s decision to choose financial flexibility is justified as it may need headroom to borrow in the future to sustain high growth.
Does SNDX’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Syndax Pharmaceuticals has no solvency issues, which is 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 SNDX’s US$17m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.63x. However, many consider a ratio above 3x to be high.
As a high-growth company, it may be beneficial for SNDX to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Going forward, its financial position may be different. I admit this is a fairly basic analysis for SNDX’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Syndax Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SNDX’s future growth? Take a look at our free research report of analyst consensus for SNDX’s outlook.
- Historical Performance: What has SNDX’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.
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