Yahoo Finance What does Inovio Pharmaceuticals Inc’s (NASDAQ:INO) Balance Sheet Tell Us About Its Future?
Inovio Pharmaceuticals Inc (NASDAQ:INO), 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 INO will have to follow strict debt obligations which will reduce its financial flexibility. While INO has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess INO’s financial health.
View our latest analysis for Inovio Pharmaceuticals
Does INO’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. 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. Either INO does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. INO delivered a negative revenue growth of -28%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can INO pay its short-term liabilities?
Since Inovio Pharmaceuticals 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$28m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.59x. Having said that, many consider anything above 3x to be quite high.
Next Steps:
Having no debt on the books means INO has more financial freedom to keep growing at its current fast rate. Since there is also no concerns around INO’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, its financial position may change. I admit this is a fairly basic analysis for INO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Inovio Pharmaceuticals to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for INO’s future growth? Take a look at our free research report of analyst consensus for INO’s outlook.
Historical Performance: What has INO’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 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.
