Furukawa Elec Current Financial Leverage

FUWAY -  USA Stock  

USD 10.84  0.20  1.88%

Furukawa Elec's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Furukawa Elec's financial risk is the risk to Furukawa Elec 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).
Please check the analysis of Furukawa Elec Fundamentals Over Time.

Furukawa Bonds 

 
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Furukawa Current Financial Burden

Furukawa Elec'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. Furukawa Elec'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 Furukawa OTC Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Furukawa Elec's stakeholders.

Asset vs Debt

Equity vs Debt

For most companies, including Furukawa Elec, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Furukawa Elec 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 the importance of Furukawa Elec's capital structure, the first step in the capital decision process is for the management of Furukawa Elec to decide how much external capital it will need to raise to operate in a sustainable way. Once the amount of financing is determined, management needs to examine the financial markets to determine the terms in which the company can boost capital. This move is crucial to the process because the market environment may reduce the ability of Furukawa Elec to issue bonds at a reasonable cost.

Furukawa Elec Financial Leverage Rating

Furukawa Elec bond ratings play a critical role in determining how much Furukawa Elec 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 Furukawa Elec's borrowing costs.
Overall Bond Rating
Not Rated
Average S&P Rating
N/A

Furukawa Elec Debt to Cash Allocation

As Furukawa Elec follows its natural business cycle, the capital allocation decisions will not magically go away. Furukawa Elec'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 accumulated 318.62 B in total debt with debt to equity ratio (D/E) of 1.07, which is about average as compared to similar companies. Furukawa Elec has a current ratio of 1.29, suggesting that it is not liquid enough and may have problems paying out its financial obligations in time and when they become due.

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

Understaning Furukawa Elec Use of Financial Leverage

Furukawa Elec financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Furukawa Elec'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 Furukawa Elec assets, the company is considered highly leveraged. Understanding the composition and structure of overall Furukawa Elec 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.
Furukawa Electric Co., Ltd. manufactures and sells telecommunications, energy, automobile, electronic parts, and construction products worldwide. Furukawa Electric Co., Ltd. was founded in 1884 and is headquartered in Tokyo, Japan. Furukawa Elec operates under Electrical Equipment Parts classification in the United States and is traded on OTC Exchange. It employs 48449 people.
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Furukawa Elec Investors Sentiment

The influence of Furukawa Elec's investor sentiment on the probability of its price appreciation or decline could be a good factor in your decision-making process regarding taking a position in Furukawa. The overall investor sentiment generally increases the direction of a stock movement in a one-year investment horizon. However, the impact of investor sentiment on the entire stock markets does not have a solid backing from leading economists and market statisticians.
Some investors attempt to determine whether the market's mood is bullish or bearish by monitoring changes in market sentiment. Unlike more traditional methods such as technical analysis, investor sentiment usually refers to the aggregate attitude towards Furukawa Elec in the overall investment community. So, suppose investors can accurately measure the market's sentiment. In that case, they can use it for their benefit. For example, some tools to gauge market sentiment could be utilized using contrarian indexes, Furukawa Elec's short interest history, or implied volatility extrapolated from Furukawa Elec options trading.

Current Sentiment - FUWAY

Furukawa Elec Investor Sentiment

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Please check the analysis of Furukawa Elec Fundamentals Over Time. Note that the Furukawa Elec information on this page should be used as a complementary analysis to other Furukawa Elec'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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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Is Furukawa Elec'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 Furukawa Elec. If investors know Furukawa 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 Furukawa Elec listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
The market value of Furukawa Elec is measured differently than its book value, which is the value of Furukawa that is recorded on the company's balance sheet. Investors also form their own opinion of Furukawa Elec's value that differs from its market value or its book value, called intrinsic value, which is Furukawa Elec'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 Furukawa Elec's market value can be influenced by many factors that don't directly affect Furukawa Elec'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 Furukawa Elec's value and its price as these two are different measures arrived at by different means. Investors typically determine Furukawa Elec value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Furukawa Elec'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.
  • 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.