Eagle Materials Corporate Bonds and Leverage Analysis
| E5M Stock | EUR 296.00 2.00 0.67% |
Eagle Materials has over 938.26 Million in debt which may indicate that it relies heavily on debt financing. . Eagle Materials' financial risk is the risk to Eagle Materials stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Eagle Materials' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Eagle Materials' 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 Eagle Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Eagle Materials' stakeholders.
For most companies, including Eagle Materials, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Eagle Materials, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Eagle Materials' 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 Eagle Materials' capital structure, the first step in the capital decision process is for the management of Eagle Materials 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 Eagle Materials to issue bonds at a reasonable cost.
Eagle Materials Debt to Cash Allocation
Many companies such as Eagle Materials, 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.
Eagle Materials has accumulated 938.26 M in total debt with debt to equity ratio (D/E) of 57.1, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Eagle Materials has a current ratio of 2.33, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Eagle Materials until it has trouble settling it off, either with new capital or with free cash flow. So, Eagle Materials' 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 Eagle Materials sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Eagle to invest in growth at high rates of return. When we think about Eagle Materials' use of debt, we should always consider it together with cash and equity.Eagle Materials 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 Eagle Materials' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Eagle Materials, which in turn will lower the firm's financial flexibility.Eagle Materials Corporate Bonds Issued
Most Eagle bonds can be classified according to their maturity, which is the date when Eagle Materials 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.
Understaning Eagle Materials Use of Financial Leverage
Eagle Materials' financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Eagle Materials' total debt position, including all outstanding debt obligations, and compares it with Eagle Materials' equity. Financial leverage can amplify the potential profits to Eagle Materials' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Eagle Materials is unable to cover its debt costs.
Eagle Materials Inc., through its subsidiaries, produces and supplies heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. Eagle Materials Inc. was founded in 1963 and is headquartered in Dallas, Texas. Eagle Materials operates under Building Materials classification in Germany and is traded on Frankfurt Stock Exchange. It employs 2300 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Eagle Stock
When determining whether Eagle Materials 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 Eagle 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 Eagle Materials Stock. Highlighted below are key reports to facilitate an investment decision about Eagle Materials Stock:Check out the analysis of Eagle Materials Fundamentals Over Time. For more detail on how to invest in Eagle Stock please use our How to Invest in Eagle Materials guide.You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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.