Tax Managed Current Financial Leverage
| RTLCX Fund | USD 68.22 0.12 0.18% |
Tax Managed's financial risk is the risk to Tax Managed 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 Tax Managed's debt-to-equity ratio measures a Mutual Fund's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Tax Managed 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 Tax Managed to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Tax Managed is said to be less leveraged. If creditors hold a majority of Tax Managed's assets, the Mutual Fund is said to be highly leveraged.
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Tax Managed Financial Leverage Rating
Tax Managed Large Cap bond ratings play a critical role in determining how much Tax Managed 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 Tax Managed's borrowing costs.Tax Managed 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 Tax Managed's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Tax Managed, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Tax Managed debt ratio should be compared their industry average or other competing firms.Understaning Tax Managed Use of Financial Leverage
Tax Managed financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Tax Managed'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 Tax Managed assets, the company is considered highly leveraged. Understanding the composition and structure of overall Tax Managed 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 Tax Managed'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 Tax Managed'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).
The fund has a non-fundamental policy to invest, under normal circumstances, at least 80 percent of the value of its net assets plus borrowings for investment purposes in large capitalization companies economically tied to the U.S. The fund invests principally in common stocks of large capitalization U.S. companies. The managers define large capitalization stocks as stocks of those companies represented by the SP 500 Index or within the capitalization range of the SP 500 Index. Please read more on our technical analysis page.
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 Tax Managed 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, Tax Managed's short interest history, or implied volatility extrapolated from Tax Managed options trading.
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Check out the analysis of Tax Managed Fundamentals Over Time. Note that the Tax Managed Large information on this page should be used as a complementary analysis to other Tax Managed'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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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.