Graphic Packaging Holding Corporate Bonds and Leverage Analysis

GPK Stock  USD 29.09  0.19  0.66%   
Graphic Packaging Holding holds a debt-to-equity ratio of 2.806. At this time, Graphic Packaging's Cash Flow To Debt Ratio is quite stable compared to the past year. Graphic Packaging's financial risk is the risk to Graphic Packaging 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

Graphic Packaging'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. Graphic Packaging'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 Graphic Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Graphic Packaging's stakeholders.
For most companies, including Graphic Packaging, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Graphic Packaging Holding 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
3.1805
Book Value
9.086
Operating Margin
0.1423
Profit Margin
0.0767
Return On Assets
0.0752
At this time, Graphic Packaging's Cash Flow To Debt Ratio is quite stable compared to the past year.
  
Check out the analysis of Graphic Packaging Fundamentals Over Time.

Graphic Packaging Financial Leverage Rating

Graphic Packaging Holding bond ratings play a critical role in determining how much Graphic Packaging 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 Graphic Packaging's borrowing costs.
Piotroski F Score
8  Strong
Beneish M Score

Graphic Packaging Holding Debt to Cash Allocation

As Graphic Packaging Holding follows its natural business cycle, the capital allocation decisions will not magically go away. Graphic Packaging'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 has 5.62 B in debt with debt to equity (D/E) ratio of 2.81, meaning that the company heavily relies on borrowing funds for operations. Graphic Packaging Holding has a current ratio of 1.27, demonstrating that it is not liquid enough and may have problems paying out its financial commitments when the payables are due. Debt can assist Graphic Packaging until it has trouble settling it off, either with new capital or with free cash flow. So, Graphic Packaging'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 Graphic Packaging Holding sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Graphic to invest in growth at high rates of return. When we think about Graphic Packaging's use of debt, we should always consider it together with cash and equity.

Graphic Packaging Total Assets Over Time

Graphic Packaging 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 Graphic Packaging's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Graphic Packaging, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Graphic Packaging debt ratio should be compared their industry average or other competing firms.

Graphic Short Long Term Debt Total

Short Long Term Debt Total

5.91 Billion

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

Understaning Graphic Packaging Use of Financial Leverage

Graphic Packaging financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Graphic Packaging'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 Graphic Packaging assets, the company is considered highly leveraged. Understanding the composition and structure of overall Graphic Packaging 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 Graphic Packaging'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 Graphic Packaging'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 Total5.6 B5.9 B
Net Debt5.5 B5.7 B
Short Term Debt826 M867.3 M
Long Term Debt4.6 B2.8 B
Long Term Debt TotalB3.2 B
Short and Long Term Debt757 M794.9 M
Long Term Debt To Capitalization 0.62  0.50 
Total Debt To Capitalization 0.66  0.48 
Debt Equity Ratio 1.90  2.18 
Debt Ratio 0.47  0.35 
Cash Flow To Debt Ratio 0.22  0.28 
Please read more on our technical analysis page.

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When determining whether Graphic Packaging Holding is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Graphic Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Graphic Packaging Holding Stock. Highlighted below are key reports to facilitate an investment decision about Graphic Packaging Holding Stock:
Check out the analysis of Graphic Packaging Fundamentals Over Time.
You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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When running Graphic Packaging's price analysis, check to measure Graphic Packaging'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 Graphic Packaging is operating at the current time. Most of Graphic Packaging's value examination focuses on studying past and present price action to predict the probability of Graphic Packaging's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Graphic Packaging's price. Additionally, you may evaluate how the addition of Graphic Packaging to your portfolios can decrease your overall portfolio volatility.
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Is Graphic Packaging'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 Graphic Packaging. If investors know Graphic 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 Graphic Packaging 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
0.26
Dividend Share
0.4
Earnings Share
2.34
Revenue Per Share
30.591
Quarterly Revenue Growth
(0.06)
The market value of Graphic Packaging Holding is measured differently than its book value, which is the value of Graphic that is recorded on the company's balance sheet. Investors also form their own opinion of Graphic Packaging's value that differs from its market value or its book value, called intrinsic value, which is Graphic Packaging'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 Graphic Packaging's market value can be influenced by many factors that don't directly affect Graphic Packaging'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 Graphic Packaging's value and its price as these two are different measures arrived at by different means. Investors typically determine if Graphic Packaging is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Graphic Packaging'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.