Estee Lauder Current Financial Leverage

EL Stock  USD 145.04  5.73  4.11%   
Estee Lauder Companies holds a debt-to-equity ratio of 1.209. At this time, Estee Lauder's Short and Long Term Debt is quite stable compared to the past year. Long Term Debt To Capitalization is expected to rise to 0.58 this year, although the value of Cash Flow To Debt Ratio will most likely fall to 0.19. Estee Lauder's financial risk is the risk to Estee Lauder stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).

Asset vs Debt

Equity vs Debt

Estee Lauder's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Estee Lauder's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Estee Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Estee Lauder's stakeholders.
For most companies, including Estee Lauder, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Estee Lauder Companies the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Price Book
9.1024
Book Value
15.936
Operating Margin
0.1363
Profit Margin
0.0308
Return On Assets
0.0291
At this time, Estee Lauder's Short and Long Term Debt is quite stable compared to the past year. Long Term Debt To Capitalization is expected to rise to 0.58 this year, although the value of Cash Flow To Debt Ratio will most likely fall to 0.19.
  
Check out the analysis of Estee Lauder Fundamentals Over Time.

Estee Lauder Financial Leverage Rating

Estee Lauder Companies bond ratings play a critical role in determining how much Estee Lauder have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Estee Lauder's borrowing costs.
Piotroski F Score
6  Healthy
Beneish M Score

Estee Lauder Companies Debt to Cash Allocation

As Estee Lauder Companies follows its natural business cycle, the capital allocation decisions will not magically go away. Estee Lauder's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors. Many companies eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
The company reports 10.17 B of total liabilities with total debt to equity ratio (D/E) of 1.21, which is normal for its line of buisiness. Estee Lauder Companies has a current ratio of 1.65, which is generally considered normal. Debt can assist Estee Lauder until it has trouble settling it off, either with new capital or with free cash flow. So, Estee Lauder's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Estee Lauder Companies sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Estee to invest in growth at high rates of return. When we think about Estee Lauder's use of debt, we should always consider it together with cash and equity.

Estee Lauder Total Assets Over Time

Estee Lauder Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Estee Lauder's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Estee Lauder, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a an Estee Lauder debt ratio should be compared their industry average or other competing firms.

Estee Short Long Term Debt Total

Short Long Term Debt Total

12.28 Billion

At this time, Estee Lauder's Short and Long Term Debt Total is quite stable compared to the past year.

Understaning Estee Lauder Use of Financial Leverage

Estee Lauder financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Estee Lauder's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Estee Lauder assets, the company is considered highly leveraged. Understanding the composition and structure of overall Estee Lauder debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Estee Lauder's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Estee Lauder's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Last ReportedProjected for 2024
Short and Long Term Debt Total11.7 B12.3 B
Net Debt7.1 B7.4 B
Short Term Debt1.6 B1.6 B
Long Term Debt8.2 B8.6 B
Long Term Debt Total8.2 B8.6 B
Short and Long Term Debt1.1 B1.2 B
Long Term Debt To Capitalization 0.55  0.58 
Total Debt To Capitalization 0.58  0.61 
Debt Equity Ratio 1.64  1.72 
Debt Ratio 0.39  0.41 
Cash Flow To Debt Ratio 0.20  0.19 
Please read more on our technical analysis page.

Pair Trading with Estee Lauder

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Estee Lauder position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Estee Lauder will appreciate offsetting losses from the drop in the long position's value.

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The ability to find closely correlated positions to Estee Lauder could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Estee Lauder when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Estee Lauder - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Estee Lauder Companies to buy it.
The correlation of Estee Lauder is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Estee Lauder moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Estee Lauder Companies moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Estee Lauder can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching
When determining whether Estee Lauder Companies is a strong investment it is important to analyze Estee Lauder's competitive position within its industry, examining market share, product or service uniqueness, and competitive advantages. Beyond financials and market position, potential investors should also consider broader economic conditions, industry trends, and any regulatory or geopolitical factors that may impact Estee Lauder's future performance. For an informed investment choice regarding Estee Stock, refer to the following important reports:

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When running Estee Lauder's price analysis, check to measure Estee Lauder's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Estee Lauder is operating at the current time. Most of Estee Lauder's value examination focuses on studying past and present price action to predict the probability of Estee Lauder's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Estee Lauder's price. Additionally, you may evaluate how the addition of Estee Lauder to your portfolios can decrease your overall portfolio volatility.
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Is Estee Lauder's industry expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Estee Lauder. If investors know Estee will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Estee Lauder listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Quarterly Earnings Growth
(0.20)
Dividend Share
2.64
Earnings Share
1.29
Revenue Per Share
42.303
Quarterly Revenue Growth
(0.07)
The market value of Estee Lauder Companies is measured differently than its book value, which is the value of Estee that is recorded on the company's balance sheet. Investors also form their own opinion of Estee Lauder's value that differs from its market value or its book value, called intrinsic value, which is Estee Lauder's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Estee Lauder's market value can be influenced by many factors that don't directly affect Estee Lauder's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Estee Lauder's value and its price as these two are different measures arrived at by different means. Investors typically determine if Estee Lauder is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Estee Lauder's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.