UroGen Pharma Ltd (NASDAQ:URGN), 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 URGN will have to follow strict debt obligations which will reduce its financial flexibility. While URGN has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status. See our latest analysis for UroGen Pharma
Is URGN growing fast enough to value financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. URGN’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. Opposite to the high growth we were expecting, URGN’s negative revenue growth of -50.88% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.
Does URGN’s liquid assets cover its short-term commitments?
Since UroGen Pharma 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. At the current liabilities level of US$5.54m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 23.26x. However, a ratio greater than 3x may be considered as too high, as URGN could be holding too much capital in a low-return investment environment.
URGN is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around URGN’s liquidity needs, this may be its optimal capital structure for the time being. Moving forward, URGN’s financial situation may change. I admit this is a fairly basic analysis for URGN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research UroGen Pharma to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for URGN’s future growth? Take a look at our free research report of analyst consensus for URGN’s outlook.
- Valuation: What is URGN 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 URGN 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.