Alerus Financial Corp Corporate Bonds and Leverage Analysis
| ALRS Stock | USD 21.89 0.09 0.41% |
Alerus Financial Corp has over 378.88 Million in debt which may indicate that it relies heavily on debt financing. . Alerus Financial's financial risk is the risk to Alerus Financial stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Alerus Financial'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. Alerus Financial'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 Alerus Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Alerus Financial's stakeholders.
For most companies, including Alerus Financial, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Alerus Financial Corp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Alerus Financial'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 Alerus Financial's capital structure, the first step in the capital decision process is for the management of Alerus Financial 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 Alerus Financial Corp to issue bonds at a reasonable cost.
Alerus Financial Corp Debt to Cash Allocation
Many companies such as Alerus Financial, 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.
Alerus Financial Corp currently holds 378.88 M in liabilities with Debt to Equity (D/E) ratio of 11.87, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Note, when we think about Alerus Financial's use of debt, we should always consider it together with its cash and equity.Alerus Financial 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 Alerus Financial's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Alerus Financial, which in turn will lower the firm's financial flexibility.Alerus Financial Corporate Bonds Issued
Understaning Alerus Financial Use of Financial Leverage
Alerus Financial's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Alerus Financial's current equity. If creditors own a majority of Alerus Financial's assets, the company is considered highly leveraged. Understanding the composition and structure of Alerus Financial's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Alerus Financial Corporation, through its subsidiary, Alerus Financial, National Association, provides various financial services to businesses and consumers. Alerus Financial Corporation was founded in 1879 and is headquartered in Grand Forks, North Dakota. Alerus Financial operates under BanksRegional classification in the United States and is traded on NASDAQ Exchange. It employs 779 people. Please read more on our technical analysis page.
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Additional Tools for Alerus Stock Analysis
When running Alerus Financial's price analysis, check to measure Alerus Financial'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 Alerus Financial is operating at the current time. Most of Alerus Financial's value examination focuses on studying past and present price action to predict the probability of Alerus Financial's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Alerus Financial's price. Additionally, you may evaluate how the addition of Alerus Financial 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.