ODP Corp Debt

ODP Stock  USD 30.72  0.25  0.82%   
ODP Corp holds a debt-to-equity ratio of 0.606. . ODP Corp's financial risk is the risk to ODP Corp stockholders that is caused by an increase in debt.

Asset vs Debt

Equity vs Debt

ODP Corp'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. ODP Corp'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 ODP Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect ODP Corp's stakeholders.
For most companies, including ODP Corp, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for ODP Corp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, ODP Corp's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Price Book
1.1458
Book Value
26.019
Operating Margin
0.0192
Profit Margin
(0)
Return On Assets
0.0345
Given that ODP Corp'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 ODP Corp 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 ODP Corp to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, ODP Corp is said to be less leveraged. If creditors hold a majority of ODP Corp's assets, the Company is said to be highly leveraged.
  
Check out the analysis of ODP Corp Fundamentals Over Time.
To learn how to invest in ODP Stock, please use our How to Invest in ODP Corp guide.

ODP Corp Debt to Cash Allocation

ODP Corp has 1.24 B in debt with debt to equity (D/E) ratio of 0.61, which is OK given its current industry classification. ODP Corp has a current ratio of 1.04, demonstrating that it may not be capable to disburse its financial commitments when the payables are due. Note however, debt could still be an excellent tool for ODP to invest in growth at high rates of return.

ODP Corp 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 ODP Corp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of ODP Corp, which in turn will lower the firm's financial flexibility.

ODP Corp Corporate Bonds Issued

Understaning ODP Corp Use of Financial Leverage

ODP Corp's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to ODP Corp's current equity. If creditors own a majority of ODP Corp's assets, the company is considered highly leveraged. Understanding the composition and structure of ODP Corp's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
The ODP Corporation provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses. The ODP Corporation was incorporated in 1986 and is headquartered in Boca Raton, Florida. Office Depot operates under Specialty Retail classification in the United States and is traded on NASDAQ Exchange. It employs 26000 people.
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Pair Trading with ODP Corp

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if ODP Corp position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ODP Corp will appreciate offsetting losses from the drop in the long position's value.

Moving against ODP Stock

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The ability to find closely correlated positions to ODP Corp could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace ODP Corp when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back ODP Corp - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling ODP Corp to buy it.
The correlation of ODP Corp is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as ODP Corp moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if ODP Corp moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for ODP Corp can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching

Additional Tools for ODP Stock Analysis

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