Franklin Financial Corporate Bonds and Leverage Analysis
| FRAF Stock | USD 33.92 0.02 0.06% |
Franklin Financial has over 154.48 Million in debt which may indicate that it relies heavily on debt financing. . Franklin Financial's financial risk is the risk to Franklin Financial stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Franklin 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. Franklin 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 Franklin Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Franklin Financial's stakeholders.
For most companies, including Franklin Financial, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Franklin Financial Services, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Franklin Financial's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Franklin |
Given the importance of Franklin Financial's capital structure, the first step in the capital decision process is for the management of Franklin 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 Franklin Financial Services to issue bonds at a reasonable cost.
Franklin Financial Debt to Cash Allocation
Many companies such as Franklin 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.
Franklin Financial Services currently holds 154.48 M in liabilities with Debt to Equity (D/E) ratio of 10.27, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Note, when we think about Franklin Financial's use of debt, we should always consider it together with its cash and equity.Franklin 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 Franklin Financial's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Franklin Financial, which in turn will lower the firm's financial flexibility.Franklin Financial Corporate Bonds Issued
Most Franklin bonds can be classified according to their maturity, which is the date when Franklin Financial Services 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 Franklin Financial Use of Financial Leverage
Franklin Financial's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Franklin Financial's total debt position, including all outstanding debt obligations, and compares it with Franklin Financial's equity. Financial leverage can amplify the potential profits to Franklin Financial's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Franklin Financial is unable to cover its debt costs.
Franklin Financial Services Corporation operates as the bank holding company for Farmers and Merchants Trust Company of Chambersburg that provides commercial, retail banking, and trust services to small and medium-sized businesses, individuals, governmental entities, and non-profit organizations in Pennsylvania. Franklin Financial Services Corporation was founded in 1906 and is headquartered in Chambersburg, Pennsylvania. Franklin Finl operates under BanksRegional classification in the United States and is traded on NASDAQ Exchange. It employs 280 people. Please read more on our technical analysis page.
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Check out the analysis of Franklin Financial Fundamentals Over Time. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Is Banking space expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Franklin Financial. If investors know Franklin will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Franklin Financial listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
The market value of Franklin Financial is measured differently than its book value, which is the value of Franklin that is recorded on the company's balance sheet. Investors also form their own opinion of Franklin Financial's value that differs from its market value or its book value, called intrinsic value, which is Franklin Financial's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Franklin Financial's market value can be influenced by many factors that don't directly affect Franklin Financial's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Franklin Financial's value and its price as these two are different measures arrived at by different means. Investors typically determine if Franklin Financial is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Franklin Financial's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.
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.