Western Midstream Current Financial Leverage
Western Midstream has over 4.79 Billion in debt which may indicate that it relies heavily on debt financing. Western Midstream's financial risk is the risk to Western Midstream 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
Western Midstream'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. Western Midstream'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 Western Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Western Midstream's stakeholders.
For most companies, including Western Midstream, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Western Midstream Partners 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.
Given that Western Midstream's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Western Midstream is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Western Midstream to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Western Midstream is said to be less leveraged. If creditors hold a majority of Western Midstream's assets, the Company is said to be highly leveraged.
Western |
Western Midstream Financial Leverage Rating
Western Midstream Partners bond ratings play a critical role in determining how much Western Midstream 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 Western Midstream's borrowing costs.Western Midstream Debt to Cash Allocation
As Western Midstream Partners follows its natural business cycle, the capital allocation decisions will not magically go away. Western Midstream'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 4.79 B in debt with debt to equity (D/E) ratio of 136.6, demonstrating that the company may be unable to create cash to meet all of its financial commitments. Western Midstream has a current ratio of 0.62, suggesting that it has not enough short term capital to pay financial commitments when the payables are due. Debt can assist Western Midstream until it has trouble settling it off, either with new capital or with free cash flow. So, Western Midstream'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 Western Midstream sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Western to invest in growth at high rates of return. When we think about Western Midstream's use of debt, we should always consider it together with cash and equity.Western Midstream 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 Western Midstream's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Western Midstream, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Western Midstream debt ratio should be compared their industry average or other competing firms.Also Currently Popular
Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.Check out Your Current Watchlist to better understand how to build diversified portfolios. Also, note that the market value of any company could be tightly coupled with the direction of predictive economic indicators such as signals in price. Note that the Western Midstream information on this page should be used as a complementary analysis to other Western Midstream's statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
Other Consideration for investing in Western Stock
If you are still planning to invest in Western Midstream check if it may still be traded through OTC markets such as Pink Sheets or OTC Bulletin Board. You may also purchase it directly from the company, but this is not always possible and may require contacting the company directly. Please note that delisted stocks are often considered to be more risky investments, as they are no longer subject to the same regulatory and reporting requirements as listed stocks. Therefore, it is essential to carefully research the Western Midstream's history and understand the potential risks before investing.
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Global Correlations Find global opportunities by holding instruments from different markets | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance |
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.