Pivotal Software Current Financial Leverage
Pivotal Software has over 138.88 Million in debt which may indicate that it relies heavily on debt financing. Pivotal Software's financial risk is the risk to Pivotal Software 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 Pivotal Software'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 Pivotal Software 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 Pivotal Software to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Pivotal Software is said to be less leveraged. If creditors hold a majority of Pivotal Software's assets, the Company is said to be highly leveraged.
Pivotal |
Pivotal Software Financial Leverage Rating
Pivotal Software bond ratings play a critical role in determining how much Pivotal Software 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 Pivotal Software's borrowing costs.Pivotal Software Debt to Cash Allocation
As Pivotal Software follows its natural business cycle, the capital allocation decisions will not magically go away. Pivotal Software'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 138.88 M in liabilities with Debt to Equity (D/E) ratio of 10.1, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Pivotal Software has a current ratio of 2.47, suggesting that it is liquid enough and is able to pay its financial obligations when due. Debt can assist Pivotal Software until it has trouble settling it off, either with new capital or with free cash flow. So, Pivotal Software'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 Pivotal Software sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Pivotal to invest in growth at high rates of return. When we think about Pivotal Software's use of debt, we should always consider it together with cash and equity.Pivotal Software 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 Pivotal Software's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Pivotal Software, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Pivotal Software debt ratio should be compared their industry average or other competing firms.Becoming a Better Investor with Macroaxis
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Other Consideration for investing in Pivotal Stock
If you are still planning to invest in Pivotal Software check if it may still be traded through OTC markets such as Pink Sheets or OTC Bulletin Board. You may also purchase it directly from the company, but this is not always possible and may require contacting the company directly. Please note that delisted stocks are often considered to be more risky investments, as they are no longer subject to the same regulatory and reporting requirements as listed stocks. Therefore, it is essential to carefully research the Pivotal Software's history and understand the potential risks before investing.
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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.
- 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.