Grand River Current Debt
| GNRV Stock | USD 3.05 0.16 5.54% |
Grand River's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Grand River's financial risk is the risk to Grand River stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Given that Grand River's debt-to-equity ratio measures a OTC Stock's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Grand River 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 Grand River to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Grand River is said to be less leveraged. If creditors hold a majority of Grand River's assets, the OTC Stock is said to be highly leveraged.
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Grand River Commerce Debt to Cash Allocation
Many companies such as Grand River, 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.
Grand River Commerce currently holds 12.52 M in liabilities. Debt can assist Grand River until it has trouble settling it off, either with new capital or with free cash flow. So, Grand River'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 Grand River Commerce sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Grand to invest in growth at high rates of return. When we think about Grand River's use of debt, we should always consider it together with cash and equity.Grand River 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 Grand River's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Grand River, which in turn will lower the firm's financial flexibility.Understaning Grand River Use of Financial Leverage
Understanding the structure of Grand River's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Grand River's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Grand River Commerce, Inc. operates as the bank holding company for Grand River Bank that provides various commercial and consumer banking products and services to businesses, professionals, and residents. Grand River Commerce, Inc. was incorporated in 2006 and is based in Grandville, Michigan. Grand River operates under BanksRegional classification in the United States and is traded on OTC Exchange. Please read more on our technical analysis page.
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When running Grand River's price analysis, check to measure Grand River's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Grand River is operating at the current time. Most of Grand River's value examination focuses on studying past and present price action to predict the probability of Grand River's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Grand River's price. Additionally, you may evaluate how the addition of Grand River to your portfolios can decrease your overall portfolio volatility.
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.