Insignia Systems Corporate Bonds and Leverage Analysis
| ISIGDelisted Stock | USD 7.74 0.23 2.89% |
Insignia Systems holds a debt-to-equity ratio of 0.064. . Insignia Systems' financial risk is the risk to Insignia Systems stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Insignia Systems' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Insignia Systems' 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 Insignia Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Insignia Systems' stakeholders.
For most companies, including Insignia Systems, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Insignia Systems, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Insignia Systems' management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Insignia |
Given the importance of Insignia Systems' capital structure, the first step in the capital decision process is for the management of Insignia Systems 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 Insignia Systems to issue bonds at a reasonable cost.
Insignia Systems Debt to Cash Allocation
Many companies such as Insignia Systems, 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.
Insignia Systems currently holds 144 K in liabilities with Debt to Equity (D/E) ratio of 0.06, which may suggest the company is not taking enough advantage from borrowing. Insignia Systems has a current ratio of 1.68, which is within standard range for the sector. Note, when we think about Insignia Systems' use of debt, we should always consider it together with its cash and equity.Insignia Systems 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 Insignia Systems' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Insignia Systems, which in turn will lower the firm's financial flexibility.Insignia Systems Corporate Bonds Issued
Most Insignia bonds can be classified according to their maturity, which is the date when Insignia Systems 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 Insignia Systems Use of Financial Leverage
Insignia Systems' financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Insignia Systems' total debt position, including all outstanding debt obligations, and compares it with Insignia Systems' equity. Financial leverage can amplify the potential profits to Insignia Systems' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Insignia Systems is unable to cover its debt costs.
Insignia Systems, Inc. provides in-store advertising solutions to consumer-packaged goods manufacturers, retailers, shopper marketing agencies, and brokerages in the United States. The company was incorporated in 1990 and is headquartered in Minneapolis, Minnesota. Insignia Systems operates under Advertising Agencies classification in the United States and is traded on NASDAQ Exchange. It employs 31 people. Please read more on our technical analysis page.
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Check out Risk vs Return Analysis 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 gross domestic product. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.
Other Consideration for investing in Insignia Stock
If you are still planning to invest in Insignia Systems 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 Insignia Systems' 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.