Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Aerie Pharmaceuticals Inc (NASDAQ:AERI), with a market capitalization of US$2.02B, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. AERI’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AERI here. Check out our latest analysis for Aerie Pharmaceuticals
Does AERI generate an acceptable amount of cash through operations?
AERI has sustained its debt level by about US$123.85M over the last 12 months made up of current and long term debt. At this stable level of debt, AERI currently has US$249.66M remaining in cash and short-term investments for investing 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 examine some of AERI’s operating efficiency ratios such as ROA here.
Can AERI meet its short-term obligations with the cash in hand?
At the current liabilities level of US$25.18M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$254.14M, with a current ratio of 10.09x. However, a ratio greater than 3x may be considered as too high, as AERI could be holding too much capital in a low-return investment environment.
Can AERI service its debt comfortably?
With debt reaching 52.45% of equity, AERI may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since AERI is presently 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.
Next Steps:
AERI’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 will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AERI has company-specific issues impacting its capital structure decisions. I suggest you continue to research Aerie Pharmaceuticals to get a more holistic view of the stock by looking at: