Innate Pharma Corporate Bonds and Leverage Analysis
| IPH Stock | EUR 1.42 0.02 1.39% |
Innate Pharma holds a debt-to-equity ratio of 2.7. With a high degree of financial leverage come high-interest payments, which usually reduce Innate Pharma's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Innate Pharma'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. Innate Pharma'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 Innate Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Innate Pharma's stakeholders.
For most companies, including Innate Pharma, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Innate Pharma, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Innate Pharma's 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 Innate Pharma's capital structure, the first step in the capital decision process is for the management of Innate Pharma 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 Innate Pharma to issue bonds at a reasonable cost.
Innate Pharma Debt to Cash Allocation
Innate Pharma has accumulated 46.5 M in total debt with debt to equity ratio (D/E) of 2.7, implying the company greatly relies on financing operations through barrowing. Innate Pharma has a current ratio of 1.59, which is within standard range for the sector. Debt can assist Innate Pharma until it has trouble settling it off, either with new capital or with free cash flow. So, Innate Pharma'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 Innate Pharma sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Innate to invest in growth at high rates of return. When we think about Innate Pharma's use of debt, we should always consider it together with cash and equity.Innate Pharma 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 Innate Pharma's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Innate Pharma, which in turn will lower the firm's financial flexibility.Innate Pharma Corporate Bonds Issued
Most Innate bonds can be classified according to their maturity, which is the date when Innate Pharma 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 Innate Pharma Use of Financial Leverage
Innate Pharma's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Innate Pharma's total debt position, including all outstanding debt obligations, and compares it with Innate Pharma's equity. Financial leverage can amplify the potential profits to Innate Pharma's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Innate Pharma is unable to cover its debt costs.
Innate Pharma S.A., a clinical-stage biotechnology company, discovers and develops therapeutic antibodies for the treatment of cancer in France and internationally. The company was founded in 1999 and is based in Marseille, France. INNATE PHARMA operates under Biotechnology classification in France and is traded on Paris Stock Exchange. It employs 191 people. Please read more on our technical analysis page.
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Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.Additional Information and Resources on Investing in Innate Stock
When determining whether Innate Pharma offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Innate Pharma's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Innate Pharma Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Innate Pharma Stock:Check out the analysis of Innate Pharma Fundamentals Over Time. For information on how to trade Innate Stock refer to our How to Trade Innate Stock guide.You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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.