Mid-caps stocks, like Acceleron Pharma Inc. (NASDAQ:XLRN) with a market capitalization of US$2.3b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. XLRN’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into XLRN here.
Is XLRN’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Acceleron Pharma, 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 XLRN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can XLRN meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Acceleron Pharma has no solvency issues, which is 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$19m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 16.18x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors.
XLRN has zero-debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure XLRN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Acceleron Pharma to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for XLRN’s future growth? Take a look at our free research report of analyst consensus for XLRN’s outlook.
- Historical Performance: What has XLRN’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.
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