Yahoo Finance Is Sage Therapeutics Inc’s (NASDAQ:SAGE) Liquidity Good Enough?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Sage Therapeutics Inc (NASDAQ:SAGE), with a market capitalization of US$6.92B, rarely draw their attention from the investing community. 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. Today we will look at SAGE’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SAGE here. View our latest analysis for Sage Therapeutics
Is SAGE’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 SAGE, the debt-to-equity ratio is zero, meaning that the company has no debt. 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 SAGE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can SAGE meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Sage Therapeutics has no solvency issues, which is 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. With current liabilities at US$51.95M, it seems that the business has been able to meet these obligations given the level of current assets of US$525.08M, with a current ratio of 10.11x. However, anything about 3x may be excessive, since SAGE may be leaving too much capital in low-earning investments.
Next Steps:
SAGE has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt may also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for SAGE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sage Therapeutics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAGE’s future growth? Take a look at our free research report of analyst consensus for SAGE’s outlook.
Valuation: What is SAGE 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 SAGE 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 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.
