Diversified Energy Corporate Bonds and Leverage Analysis
| DEC Stock | 1,278 7.00 0.55% |
At present, Diversified Energy's Net Debt is projected to increase significantly based on the last few years of reporting. The current year's Short Term Debt is expected to grow to about 222 M, whereas Long Term Debt is forecasted to decline to about 689 M. . Diversified Energy's financial risk is the risk to Diversified Energy stockholders that is caused by an increase in debt.
At present, Diversified Energy's Liabilities And Stockholders Equity is projected to increase significantly based on the last few years of reporting. The current year's Non Current Liabilities Total is expected to grow to about 2.3 B, whereas Non Current Liabilities Other is forecasted to decline to about 2.1 M. Diversified |
Given the importance of Diversified Energy's capital structure, the first step in the capital decision process is for the management of Diversified Energy 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 Diversified Energy to issue bonds at a reasonable cost.
Diversified Energy Total Assets Over Time
Diversified Energy 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 Diversified Energy's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Diversified Energy, which in turn will lower the firm's financial flexibility.Diversified Energy Corporate Bonds Issued
Most Diversified bonds can be classified according to their maturity, which is the date when Diversified Energy 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.
Diversified Short Long Term Debt Total
Short Long Term Debt Total |
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Understaning Diversified Energy Use of Financial Leverage
Diversified Energy's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Diversified Energy's total debt position, including all outstanding debt obligations, and compares it with Diversified Energy's equity. Financial leverage can amplify the potential profits to Diversified Energy's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Diversified Energy is unable to cover its debt costs.
| Last Reported | Projected for Next Year | ||
| Short and Long Term Debt Total | 1.3 B | 1.4 B | |
| Net Debt | 1.3 B | 1.4 B | |
| Short Term Debt | 211.4 M | 222 M | |
| Long Term Debt | 1.1 B | 689 M | |
| Short and Long Term Debt | 200.8 M | 210.9 M |
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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.