MUNJAL AUTO Current Financial Leverage

MUNJAL AUTO'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. MUNJAL AUTO's financial risk is the risk to MUNJAL AUTO 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).
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MUNJAL Current Financial Burden

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

Asset vs Debt

Equity vs Debt

For most companies, including MUNJAL AUTO, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running MUNJAL AUTO INDUSTRIES 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.

MUNJAL AUTO Financial Leverage Rating

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

MUNJAL AUTO INDUSTRIES Debt to Cash Allocation

As MUNJAL AUTO INDUSTRIES follows its natural business cycle, the capital allocation decisions will not magically go away. MUNJAL AUTO'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 487.81 M in total debt with debt to equity ratio (D/E) of 15.7, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. MUNJAL AUTO INDUSTRIES has a current ratio of 1.23, suggesting that it may not be capable to disburse its financial obligations in time and when they become due.

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

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Check out Stocks Correlation. Note that the MUNJAL AUTO INDUSTRIES information on this page should be used as a complementary analysis to other MUNJAL AUTO'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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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When running MUNJAL AUTO INDUSTRIES price analysis, check to measure MUNJAL AUTO'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 MUNJAL AUTO is operating at the current time. Most of MUNJAL AUTO's value examination focuses on studying past and present price action to predict the probability of MUNJAL AUTO's future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move MUNJAL AUTO's price. Additionally, you may evaluate how the addition of MUNJAL AUTO to your portfolios can decrease your overall portfolio volatility.
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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.