Yahoo Finance Does Exact Sciences Corporation’s (NASDAQ:EXAS) Debt Level Pose A Problem?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Exact Sciences Corporation (NASDAQ:EXAS), with a market capitalization of US$8.3b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine EXAS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into EXAS here.
View our latest analysis for Exact Sciences
How much cash does EXAS generate through its operations?
EXAS’s debt levels surged from US$6m to US$655m over the last 12 months , which is made up of current and long term debt. With this rise in debt, EXAS currently has US$1.2b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of EXAS’s operating efficiency ratios such as ROA here.
Does EXAS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$83m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.3b, with a current ratio of 15.79x. However, many consider anything above 3x to be quite high.
Can EXAS service its debt comfortably?
EXAS is a relatively highly levered company with a debt-to-equity of 88%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since EXAS is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
EXAS’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 an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure EXAS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Exact Sciences to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EXAS’s future growth? Take a look at our free research report of analyst consensus for EXAS’s outlook.
Valuation: What is EXAS 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 EXAS 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
