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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Idorsia Ltd (VTX:IDIA), with a market cap of CHF3.0b, often get neglected by retail investors. 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. IDIA’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into IDIA here.
Does IDIA Produce Much Cash Relative To Its Debt?
IDIA has built up its total debt levels in the last twelve months, from CHF365m to CHF624m – this includes long-term debt. With this rise in debt, IDIA currently has CHF812m remaining in cash and short-term investments , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of IDIA’s operating efficiency ratios such as ROA here.
Can IDIA meet its short-term obligations with the cash in hand?
With current liabilities at CHF110m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.57x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Can IDIA service its debt comfortably?
With total debt exceeding equity, IDIA is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since IDIA is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
IDIA’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around IDIA’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for IDIA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Idorsia to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IDIA’s future growth? Take a look at our free research report of analyst consensus for IDIA’s outlook.
- Historical Performance: What has IDIA’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.