Arista Networks Current Debt
| A1NE34 Stock | BRL 160.09 0.87 0.54% |
Arista Networks holds a debt-to-equity ratio of 0.017. With a high degree of financial leverage come high-interest payments, which usually reduce Arista Networks' Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Arista Networks' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Arista Networks' 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 Arista Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Arista Networks' stakeholders.
For most companies, including Arista Networks, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Arista Networks, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Arista Networks' management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Arista Networks' 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 Arista Networks 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 Arista Networks to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Arista Networks is said to be less leveraged. If creditors hold a majority of Arista Networks' assets, the Company is said to be highly leveraged.
Arista |
Arista Networks Debt to Cash Allocation
Arista Networks has accumulated 64.3 M in total debt with debt to equity ratio (D/E) of 0.02, which may suggest the company is not taking enough advantage from borrowing. Arista Networks has a current ratio of 4.93, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Arista Networks until it has trouble settling it off, either with new capital or with free cash flow. So, Arista Networks' 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 Arista Networks sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Arista to invest in growth at high rates of return. When we think about Arista Networks' use of debt, we should always consider it together with cash and equity.Arista Networks 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 Arista Networks' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Arista Networks, which in turn will lower the firm's financial flexibility.Understaning Arista Networks Use of Financial Leverage
Arista Networks' financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Arista Networks' total debt position, including all outstanding debt obligations, and compares it with Arista Networks' equity. Financial leverage can amplify the potential profits to Arista Networks' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Arista Networks is unable to cover its debt costs.
Arista Networks, Inc. develops, markets, and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. Arista Networks, Inc. was incorporated in 2004 and is headquartered in Santa Clara, California. ARISTA NETWODRN operates under Computer Hardware classification in Brazil and is traded on Sao Paolo Stock Exchange. It employs 2613 people. Please read more on our technical analysis page.
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When determining whether Arista Networks 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 Arista 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 Arista Networks Stock. Highlighted below are key reports to facilitate an investment decision about Arista Networks Stock:Check out the analysis of Arista Networks Fundamentals Over Time. For information on how to trade Arista Stock refer to our How to Trade Arista Stock guide.You can also try the Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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.