Equity Residential Debt
| EQR Stock | EUR 68.50 1.50 2.24% |
Equity Residential has over 7.3 Billion in debt which may indicate that it relies heavily on debt financing. . Equity Residential's financial risk is the risk to Equity Residential stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Equity Residential'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. Equity Residential'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 Equity Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Equity Residential's stakeholders.
For most companies, including Equity Residential, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Equity Residential, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Equity Residential's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Equity Residential's 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 Equity Residential 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 Equity Residential to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Equity Residential is said to be less leveraged. If creditors hold a majority of Equity Residential's assets, the Company is said to be highly leveraged.
Equity |
Equity Residential Debt to Cash Allocation
Many companies such as Equity Residential, 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.
Equity Residential has accumulated 7.3 B in total debt with debt to equity ratio (D/E) of 86.5, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Equity Residential has a current ratio of 0.12, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Debt can assist Equity Residential until it has trouble settling it off, either with new capital or with free cash flow. So, Equity Residential's 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 Equity Residential sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Equity to invest in growth at high rates of return. When we think about Equity Residential's use of debt, we should always consider it together with cash and equity.Equity Residential 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 Equity Residential's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Equity Residential, which in turn will lower the firm's financial flexibility.Equity Residential Corporate Bonds Issued
Most Equity bonds can be classified according to their maturity, which is the date when Equity Residential 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 Equity Residential Use of Financial Leverage
Equity Residential's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Equity Residential's total debt position, including all outstanding debt obligations, and compares it with Equity Residential's equity. Financial leverage can amplify the potential profits to Equity Residential's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Equity Residential is unable to cover its debt costs.
Equity Residential is an SP 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets where todays renters want to live, work and play. Equity Residential owns or has investments in 310 properties consisting of 80,061 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver. Equity Residential operates under REIT - Residential classification in Germany and is traded on Frankfurt Stock Exchange. It employs 2700 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Equity Stock
When determining whether Equity Residential is a strong investment it is important to analyze Equity Residential's competitive position within its industry, examining market share, product or service uniqueness, and competitive advantages. Beyond financials and market position, potential investors should also consider broader economic conditions, industry trends, and any regulatory or geopolitical factors that may impact Equity Residential's future performance. For an informed investment choice regarding Equity Stock, refer to the following important reports:Check out the analysis of Equity Residential Fundamentals Over Time. For more detail on how to invest in Equity Stock please use our How to Invest in Equity Residential guide.You can also try the ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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.