Equitrans Midstream Corp Corporate Bonds and Leverage Analysis
| ETRNDelisted Stock | USD 12.42 0.06 0.49% |
Equitrans Midstream Corp holds a debt-to-equity ratio of 2.519. With a high degree of financial leverage come high-interest payments, which usually reduce Equitrans Midstream's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Equitrans Midstream'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. Equitrans Midstream'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 Equitrans Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Equitrans Midstream's stakeholders.
For most companies, including Equitrans Midstream, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Equitrans Midstream Corp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Equitrans Midstream's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Equitrans |
Given the importance of Equitrans Midstream's capital structure, the first step in the capital decision process is for the management of Equitrans Midstream 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 Equitrans Midstream Corp to issue bonds at a reasonable cost.
Equitrans Midstream Corp Debt to Cash Allocation
As Equitrans Midstream Corp follows its natural business cycle, the capital allocation decisions will not magically go away. Equitrans Midstream's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors.
Equitrans Midstream Corp currently holds 7.59 B in liabilities with Debt to Equity (D/E) ratio of 2.52, implying the company greatly relies on financing operations through barrowing. Equitrans Midstream Corp has a current ratio of 1.27, suggesting that it is not liquid enough and may have problems paying out its financial obligations when due. Note, when we think about Equitrans Midstream's use of debt, we should always consider it together with its cash and equity.Equitrans Midstream 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 Equitrans Midstream's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Equitrans Midstream, which in turn will lower the firm's financial flexibility.Equitrans Midstream Corporate Bonds Issued
Understaning Equitrans Midstream Use of Financial Leverage
Leverage ratios show Equitrans Midstream's total debt position, including all outstanding obligations. In simple terms, high financial leverage means that the cost of production, along with the day-to-day running of the business, is high. Conversely, lower financial leverage implies lower fixed cost investment in the business, which is generally considered a good sign by investors. The degree of Equitrans Midstream's financial leverage can be measured in several ways, including ratios such as the debt-to-equity ratio (total debt / total equity), or the debt ratio (total debt / total assets).
Equitrans Midstream Corporation owns, operates, acquires, and develops natural gas gathering, transmission and storage, and water services assets in the Appalachian Basin. Equitrans Midstream Corporation was incorporated in 2018 and is headquartered in Canonsburg, Pennsylvania. Equitrans Midstream operates under Oil Gas Midstream classification in the United States and is traded on New York Stock Exchange. It employs 766 people. Please read more on our technical analysis page.
Pair Trading with Equitrans Midstream
One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Equitrans Midstream position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Equitrans Midstream will appreciate offsetting losses from the drop in the long position's value.Moving against Equitrans Stock
| 0.51 | JPM | JPMorgan Chase Sell-off Trend | PairCorr |
| 0.42 | BAC | Bank of America Aggressive Push | PairCorr |
| 0.33 | CVX | Chevron Corp Sell-off Trend | PairCorr |
The ability to find closely correlated positions to Equitrans Midstream could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Equitrans Midstream when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Equitrans Midstream - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Equitrans Midstream Corp to buy it.
The correlation of Equitrans Midstream is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Equitrans Midstream moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Equitrans Midstream Corp moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Equitrans Midstream can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.Check out Investing Opportunities to better understand how to build diversified portfolios. Also, note that the market value of any company could be closely tied with the direction of predictive economic indicators such as signals in metropolitan statistical area. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
Other Consideration for investing in Equitrans Stock
If you are still planning to invest in Equitrans Midstream Corp check if it may still be traded through OTC markets such as Pink Sheets or OTC Bulletin Board. You may also purchase it directly from the company, but this is not always possible and may require contacting the company directly. Please note that delisted stocks are often considered to be more risky investments, as they are no longer subject to the same regulatory and reporting requirements as listed stocks. Therefore, it is essential to carefully research the Equitrans Midstream's history and understand the potential risks before investing.
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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.