Novanta Debt
| 1GSN Stock | EUR 158.00 1.00 0.64% |
Novanta holds a debt-to-equity ratio of 0.534. . Novanta's financial risk is the risk to Novanta stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Novanta'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. Novanta'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 Novanta Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Novanta's stakeholders.
For most companies, including Novanta, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Novanta, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Novanta's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Novanta'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 Novanta 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 Novanta to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Novanta is said to be less leveraged. If creditors hold a majority of Novanta's assets, the Company is said to be highly leveraged.
Novanta |
Novanta Debt to Cash Allocation
Many companies such as Novanta, 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.
Novanta has accumulated 429.36 M in total debt with debt to equity ratio (D/E) of 0.53, which is about average as compared to similar companies. Novanta has a current ratio of 2.61, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Novanta until it has trouble settling it off, either with new capital or with free cash flow. So, Novanta'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 Novanta sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Novanta to invest in growth at high rates of return. When we think about Novanta's use of debt, we should always consider it together with cash and equity.Novanta 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 Novanta's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Novanta, which in turn will lower the firm's financial flexibility.Novanta Corporate Bonds Issued
Most Novanta bonds can be classified according to their maturity, which is the date when Novanta has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.
Understaning Novanta Use of Financial Leverage
Novanta's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Novanta's total debt position, including all outstanding debt obligations, and compares it with Novanta's equity. Financial leverage can amplify the potential profits to Novanta's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Novanta is unable to cover its debt costs.
Novanta Inc., together with its subsidiaries, designs, manufactures, markets, and sells photonics, vision, and precision motion components and sub-systems to original equipment manufacturers in the medical and industrial markets worldwide. Novanta Inc. was founded in 1968 and is headquartered in Bedford, Massachusetts. NOVANTA INC operates under Scientific Technical Instruments classification in Germany and is traded on Frankfurt Stock Exchange. It employs 2200 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Novanta Stock
When determining whether Novanta is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Novanta Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Novanta Stock. Highlighted below are key reports to facilitate an investment decision about Novanta Stock:Check out the analysis of Novanta Fundamentals Over Time. For more detail on how to invest in Novanta Stock please use our How to Invest in Novanta guide.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.