Kinder Morgan Corporate Bonds and Leverage Analysis

KMI Stock  USD 18.15  0.24  1.34%   
Kinder Morgan holds a debt-to-equity ratio of 1.0. As of now, Kinder Morgan's Long Term Debt To Capitalization is decreasing as compared to previous years. The Kinder Morgan's current Total Debt To Capitalization is estimated to increase to 0.66, while Long Term Debt is projected to decrease to under 21.7 B. Kinder Morgan's financial risk is the risk to Kinder Morgan 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

Kinder Morgan'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. Kinder Morgan'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 Kinder Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Kinder Morgan's stakeholders.
For most companies, including Kinder Morgan, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Kinder Morgan 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
1.3116
Book Value
13.653
Operating Margin
0.2729
Profit Margin
0.1559
Return On Assets
0.0376
As of now, Kinder Morgan's Long Term Debt To Capitalization is decreasing as compared to previous years. The Kinder Morgan's current Total Debt To Capitalization is estimated to increase to 0.66, while Long Term Debt is projected to decrease to under 21.7 B.
  
Check out the analysis of Kinder Morgan Fundamentals Over Time.
For more detail on how to invest in Kinder Stock please use our How to Invest in Kinder Morgan guide.
View Bond Profile
Given the importance of Kinder Morgan's capital structure, the first step in the capital decision process is for the management of Kinder Morgan 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 Kinder Morgan to issue bonds at a reasonable cost.

Kinder Morgan Bond Ratings

Kinder Morgan bond ratings play a critical role in determining how much Kinder Morgan 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 Kinder Morgan's borrowing costs.

Kinder Morgan Debt to Cash Allocation

As Kinder Morgan follows its natural business cycle, the capital allocation decisions will not magically go away. Kinder Morgan'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 32.12 B in debt with debt to equity (D/E) ratio of 1.0, which is OK given its current industry classification. Kinder Morgan has a current ratio of 0.61, suggesting that it has not enough short term capital to pay financial commitments when the payables are due. Debt can assist Kinder Morgan until it has trouble settling it off, either with new capital or with free cash flow. So, Kinder Morgan'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 Kinder Morgan sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Kinder to invest in growth at high rates of return. When we think about Kinder Morgan's use of debt, we should always consider it together with cash and equity.

Kinder Morgan Total Assets Over Time

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

Kinder Morgan Corporate Bonds Issued

Kinder Morgan issues bonds to finance its operations. Corporate bonds make up one of the most significant components of the U.S. bond market and are considered the world's largest securities market. Kinder Morgan uses the proceeds from bond sales for a wide variety of purposes, including financing ongoing mergers and acquisitions, buying new equipment, investing in research and development, buying back their own stock, paying dividends to shareholders, and even refinancing existing debt. Most Kinder bonds can be classified according to their maturity, which is the date when Kinder Morgan has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.

Kinder Long Term Debt

Long Term Debt

21.66 Billion

As of now, Kinder Morgan's Long Term Debt is increasing as compared to previous years.

Understaning Kinder Morgan Use of Financial Leverage

Kinder Morgan financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Kinder Morgan'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 Kinder Morgan assets, the company is considered highly leveraged. Understanding the composition and structure of overall Kinder Morgan 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 Kinder Morgan'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 Kinder Morgan'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
Long Term Debt28.1 B21.7 B
Short and Long Term Debt Total32.1 B35.6 B
Net Debt32 B34.8 B
Short Term DebtB2.8 B
Long Term Debt Total32.7 B34.3 B
Short and Long Term DebtBB
Long Term Debt To Capitalization 0.48  0.64 
Total Debt To Capitalization 0.51  0.66 
Debt Equity Ratio 1.06  2.10 
Debt Ratio 0.45  0.54 
Cash Flow To Debt Ratio 0.20  0.10 
Please read more on our technical analysis page.

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When determining whether Kinder Morgan offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Kinder Morgan's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Kinder Morgan Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Kinder Morgan Stock:
Check out the analysis of Kinder Morgan Fundamentals Over Time.
For more detail on how to invest in Kinder Stock please use our How to Invest in Kinder Morgan guide.
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When running Kinder Morgan's price analysis, check to measure Kinder Morgan'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 Kinder Morgan is operating at the current time. Most of Kinder Morgan's value examination focuses on studying past and present price action to predict the probability of Kinder Morgan's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Kinder Morgan's price. Additionally, you may evaluate how the addition of Kinder Morgan to your portfolios can decrease your overall portfolio volatility.
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Is Kinder Morgan'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 Kinder Morgan. If investors know Kinder 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 Kinder Morgan 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
(0.11)
Dividend Share
1.13
Earnings Share
1.06
Revenue Per Share
6.864
Quarterly Revenue Growth
(0.12)
The market value of Kinder Morgan is measured differently than its book value, which is the value of Kinder that is recorded on the company's balance sheet. Investors also form their own opinion of Kinder Morgan's value that differs from its market value or its book value, called intrinsic value, which is Kinder Morgan'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 Kinder Morgan's market value can be influenced by many factors that don't directly affect Kinder Morgan'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 Kinder Morgan's value and its price as these two are different measures arrived at by different means. Investors typically determine if Kinder Morgan is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Kinder Morgan'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.