Greenway Technologies' 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. Greenway Technologies' financial risk is the risk to Greenway Technologies 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).
Given that Greenway Technologies' debt-to-equity ratio measures a OTC Stock's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Greenway Technologies 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 Greenway Technologies to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Greenway Technologies is said to be less leveraged. If creditors hold a majority of Greenway Technologies' assets, the OTC Stock is said to be highly leveraged.Check out the analysis of Greenway Technologies Fundamentals Over Time.
Greenway Technologies Financial Leverage RatingGreenway Technologies bond ratings play a critical role in determining how much Greenway Technologies 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 Greenway Technologies' borrowing costs.
Greenway Technologies Debt to Cash Allocation
As Greenway Technologies follows its natural business cycle, the capital allocation decisions will not magically go away. Greenway Technologies' 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 currently holds 3.67 M in liabilities. Debt can assist Greenway Technologies until it has trouble settling it off, either with new capital or with free cash flow. So, Greenway Technologies' 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 Greenway Technologies sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Greenway to invest in growth at high rates of return. When we think about Greenway Technologies' use of debt, we should always consider it together with cash and equity.
Greenway Technologies Assets Financed by DebtTypically, 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 Greenway Technologies' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Greenway Technologies, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Greenway Technologies debt ratio should be compared their industry average or other competing firms.
Understaning Greenway Technologies Use of Financial Leverage
Greenway Technologies financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Greenway Technologies'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 Greenway Technologies assets, the company is considered highly leveraged. Understanding the composition and structure of overall Greenway Technologies 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 Greenway Technologies' 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 Greenway Technologies' 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).
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 Greenway Technologies 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, Greenway Technologies' short interest history, or implied volatility extrapolated from Greenway Technologies options trading.
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When running Greenway Technologies' price analysis, check to measure Greenway Technologies' 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 Greenway Technologies is operating at the current time. Most of Greenway Technologies' value examination focuses on studying past and present price action to predict the probability of Greenway Technologies' future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Greenway Technologies' price. Additionally, you may evaluate how the addition of Greenway Technologies to your portfolios can decrease your overall portfolio volatility.
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 CostsThe 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 LeverageLeverage 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.