Alkermes Plc Corporate Bonds and Leverage Analysis
| ALKS Stock | USD 29.32 0.07 0.24% |
Alkermes Plc holds a debt-to-equity ratio of 0.379. . Alkermes Plc's financial risk is the risk to Alkermes Plc stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Alkermes Plc'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. Alkermes Plc'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 Alkermes Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Alkermes Plc's stakeholders.
For most companies, including Alkermes Plc, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Alkermes Plc, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Alkermes Plc's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
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Given the importance of Alkermes Plc's capital structure, the first step in the capital decision process is for the management of Alkermes Plc to decide how much external capital it will need to raise to operate in a sustainable way. Once the amount of financing is determined, management needs to examine the financial markets to determine the terms in which the company can boost capital. This move is crucial to the process because the market environment may reduce the ability of Alkermes Plc to issue bonds at a reasonable cost.
Alkermes Plc Debt to Cash Allocation
Many companies such as Alkermes Plc, 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.
Alkermes Plc currently holds 372.19 M in liabilities with Debt to Equity (D/E) ratio of 0.38, which is about average as compared to similar companies. Alkermes Plc has a current ratio of 2.33, suggesting that it is liquid enough and is able to pay its financial obligations when due. Note, when we think about Alkermes Plc's use of debt, we should always consider it together with its cash and equity.Alkermes Plc 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 Alkermes Plc's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Alkermes Plc, which in turn will lower the firm's financial flexibility.Understaning Alkermes Plc Use of Financial Leverage
Alkermes Plc's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Alkermes Plc's current equity. If creditors own a majority of Alkermes Plc's assets, the company is considered highly leveraged. Understanding the composition and structure of Alkermes Plc's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Alkermes plc, a biopharmaceutical company, researches, develops, and commercializes pharmaceutical products to address unmet medical needs of patients in various therapeutic areas in the United States, Ireland, and internationally. Alkermes plc was founded in 1987 and is headquartered in Dublin, Ireland. Alkermes Plc operates under Drug ManufacturersSpecialty Generic classification in the United States and is traded on NASDAQ Exchange. It employs 2211 people. Please read more on our technical analysis page.
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When running Alkermes Plc's price analysis, check to measure Alkermes Plc'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 Alkermes Plc is operating at the current time. Most of Alkermes Plc's value examination focuses on studying past and present price action to predict the probability of Alkermes Plc's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Alkermes Plc's price. Additionally, you may evaluate how the addition of Alkermes Plc 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.