Legend Biotech Current Financial Leverage

LEGN
 Stock
  

USD 48.15  0.04  0.08%   

Legend Biotech'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. Legend Biotech's financial risk is the risk to Legend Biotech 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).
Additionally, see the analysis of Legend Biotech Fundamentals Over Time.
  
Given that Legend Biotech'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 Legend Biotech 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 Legend Biotech to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Legend Biotech is said to be less leveraged. If creditors hold a majority of Legend Biotech's assets, the company is said to be highly leveraged.
Given the importance of Legend Biotech's capital structure, the first step in the capital decision process is for the management of Legend Biotech 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 Legend Biotech Corp to issue bonds at a reasonable cost.

Legend Biotech Financial Leverage Rating

Legend Biotech Corp bond ratings play a critical role in determining how much Legend Biotech 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 Legend Biotech's borrowing costs.

Legend Biotech Corp Debt to Cash Allocation

As Legend Biotech Corp follows its natural business cycle, the capital allocation decisions will not magically go away. Legend Biotech'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 currently holds 129.23 M in liabilities with Debt to Equity (D/E) ratio of 0.29, which may suggest the company is not taking enough advantage from borrowing. Legend Biotech Corp has a current ratio of 3.75, suggesting that it is liquid enough and is able to pay its financial obligations when due. Debt can assist Legend Biotech until it has trouble settling it off, either with new capital or with free cash flow. So, Legend Biotech'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 Legend Biotech Corp sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Legend to invest in growth at high rates of return. When we think about Legend Biotech's use of debt, we should always consider it together with cash and equity.

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

Understaning Legend Biotech Use of Financial Leverage

Legend Biotech financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Legend Biotech'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 Legend Biotech assets, the company is considered highly leveraged. Understanding the composition and structure of overall Legend Biotech 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.
Legend Biotech Corporation, a clinical-stage biopharmaceutical company, through its subsidiaries, engages in the discovery and development of novel cell therapies for oncology and other indications in the United States, China, and internationally. Legend Biotech Corporation is a subsidiary of Genscript Biotech Corporation. Legend Biotech operates under Biotechnology classification in the United States and is traded on NASDAQ Exchange. It employs 1071 people. Please read more on our technical analysis page.

Legend Biotech Investors Sentiment

The influence of Legend Biotech'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 Legend. 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.
Investor biases related to Legend Biotech's public news can be used to forecast risks associated with investment in Legend. The trend in average sentiment can be used to explain how an investor holding Legend can time the market purely based on public headlines and social activities around Legend Biotech Corp. Please note that most equiteis that are difficult to arbitrage are affected by market sentiment the most.
Legend Biotech's market sentiment shows the aggregated news analyzed to detect positive and negative mentions from the text and comments. The data is normalized to provide daily scores for Legend Biotech's and other traded tickers. The bigger the bubble, the more accurate is the estimated score. Higher bars for a given day show more participation in the average Legend Biotech's news discussions. The higher the estimated score, the more favorable is the investor's outlook on Legend Biotech.
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 Legend Biotech 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, Legend Biotech's short interest history, or implied volatility extrapolated from Legend Biotech options trading.

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Additionally, see the analysis of Legend Biotech Fundamentals Over Time. Note that the Legend Biotech Corp information on this page should be used as a complementary analysis to other Legend Biotech'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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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When running Legend Biotech Corp price analysis, check to measure Legend Biotech'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 Legend Biotech is operating at the current time. Most of Legend Biotech's value examination focuses on studying past and present price action to predict the probability of Legend Biotech's future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Legend Biotech's price. Additionally, you may evaluate how the addition of Legend Biotech to your portfolios can decrease your overall portfolio volatility.
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Is Legend Biotech'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 Legend Biotech. If investors know Legend 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 Legend Biotech listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Market Capitalization
8.1 B
Quarterly Revenue Growth YOY
1.89
Return On Assets
(0.28) 
Return On Equity
(1.07) 
The market value of Legend Biotech Corp is measured differently than its book value, which is the value of Legend that is recorded on the company's balance sheet. Investors also form their own opinion of Legend Biotech's value that differs from its market value or its book value, called intrinsic value, which is Legend Biotech'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 Legend Biotech's market value can be influenced by many factors that don't directly affect Legend Biotech'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 Legend Biotech's value and its price as these two are different measures arrived at by different means. Investors typically determine Legend Biotech value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Legend Biotech'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.