Yahoo Finance Is Arena Pharmaceuticals Inc (NASDAQ:ARNA) As Strong As Its Balance Sheet Indicates?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Arena Pharmaceuticals Inc (NASDAQ:ARNA), with a market cap of US$2.44B, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at ARNA’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ARNA here. See our latest analysis for Arena Pharmaceuticals
Does ARNA generate enough cash through operations?
ARNA has shrunken its total debt levels in the last twelve months, from US$65.27M to US$61.75M made up of predominantly near term debt. With this debt repayment, the current cash and short-term investment levels stands at US$247.08M for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of ARNA’s operating efficiency ratios such as ROA here.
Can ARNA meet its short-term obligations with the cash in hand?
Looking at ARNA’s most recent US$72.33M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.89x. Though, a ratio greater than 3x may be considered as too high, as ARNA could be holding too much capital in a low-return investment environment.
Does ARNA face the risk of succumbing to its debt-load?
With debt at 10.41% of equity, ARNA may be thought of as appropriately levered. ARNA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with ARNA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
ARNA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ARNA has been performing in the past. I suggest you continue to research Arena Pharmaceuticals to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ARNA’s future growth? Take a look at our free research report of analyst consensus for ARNA’s outlook.
Historical Performance: What has ARNA’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 pass 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
