Pimco Dynamic Current Financial Leverage
| PDI Fund | USD 18.62 0.01 0.05% |
Pimco Dynamic's financial risk is the risk to Pimco Dynamic 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 Pimco Dynamic's debt-to-equity ratio measures a Fund's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Pimco Dynamic 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 Pimco Dynamic to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Pimco Dynamic is said to be less leveraged. If creditors hold a majority of Pimco Dynamic's assets, the Fund is said to be highly leveraged.
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Pimco Dynamic Financial Leverage Rating
Pimco Dynamic Income bond ratings play a critical role in determining how much Pimco Dynamic 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 Pimco Dynamic's borrowing costs.Pimco Dynamic 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 Pimco Dynamic's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Pimco Dynamic, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Pimco Dynamic debt ratio should be compared their industry average or other competing firms.Understaning Pimco Dynamic Use of Financial Leverage
Pimco Dynamic financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Pimco Dynamic'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 Pimco Dynamic assets, the company is considered highly leveraged. Understanding the composition and structure of overall Pimco Dynamic 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 Pimco Dynamic'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 Pimco Dynamic'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).
PIMCO Dynamic Income Fund is a close ended fixed income mutual fund launched and managed by Allianz Global Investors Fund Management LLC. PIMCO Dynamic Income Fund was formed on May 30, 2012 and is domiciled in the United States. Pimco Dynamic operates under Asset Management classification in the United States and is traded on New York Stock Exchange. Please read more on our technical analysis page.
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Check out the analysis of Pimco Dynamic Fundamentals Over Time. Note that the Pimco Dynamic Me information on this page should be used as a complementary analysis to other Pimco Dynamic'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 the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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.