Formosa Petrochemical Debt
| 6505 Stock | TWD 43.55 0.15 0.35% |
Formosa Petrochemical has over 29.2 Billion in debt which may indicate that it relies heavily on debt financing. . Formosa Petrochemical's financial risk is the risk to Formosa Petrochemical stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Formosa Petrochemical'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. Formosa Petrochemical'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 Formosa Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Formosa Petrochemical's stakeholders.
For most companies, including Formosa Petrochemical, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Formosa Petrochemical Corp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Formosa Petrochemical'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 Formosa Petrochemical'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 Formosa Petrochemical 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 Formosa Petrochemical to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Formosa Petrochemical is said to be less leveraged. If creditors hold a majority of Formosa Petrochemical's assets, the Company is said to be highly leveraged.
Formosa |
Formosa Petrochemical Debt to Cash Allocation
Many companies such as Formosa Petrochemical, 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.
Formosa Petrochemical Corp has accumulated 29.2 B in total debt with debt to equity ratio (D/E) of 6.4, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Formosa Petrochemical has a current ratio of 4.53, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Formosa Petrochemical until it has trouble settling it off, either with new capital or with free cash flow. So, Formosa Petrochemical'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 Formosa Petrochemical sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Formosa to invest in growth at high rates of return. When we think about Formosa Petrochemical's use of debt, we should always consider it together with cash and equity.Formosa Petrochemical 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 Formosa Petrochemical's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Formosa Petrochemical, which in turn will lower the firm's financial flexibility.Formosa Petrochemical Corporate Bonds Issued
Understaning Formosa Petrochemical Use of Financial Leverage
Understanding the structure of Formosa Petrochemical's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Formosa Petrochemical's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Formosa Petrochemical Corporation engages in petrochemical and public utility businesses in Taiwan, the Philippines, Singapore, Malaysia, the Peoples Republic of China, Korea, and internationally. Formosa Petrochemical Corporation was founded in 1992 and is headquartered in Mailiao, Taiwan. FORMOSA PETROCHEMICAL operates under Petroleum Refiners And Distributors classification in Taiwan and is traded on Taiwan Stock Exchange. Please read more on our technical analysis page.
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When running Formosa Petrochemical's price analysis, check to measure Formosa Petrochemical'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 Formosa Petrochemical is operating at the current time. Most of Formosa Petrochemical's value examination focuses on studying past and present price action to predict the probability of Formosa Petrochemical's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Formosa Petrochemical's price. Additionally, you may evaluate how the addition of Formosa Petrochemical 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.