Kaiser Aluminum Corporate Bonds and Leverage Analysis
| KLU1 Stock | EUR 75.00 0.50 0.66% |
Kaiser Aluminum has over 1.04 Billion in debt which may indicate that it relies heavily on debt financing. . Kaiser Aluminum's financial risk is the risk to Kaiser Aluminum stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Kaiser Aluminum'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. Kaiser Aluminum'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 Kaiser Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Kaiser Aluminum's stakeholders.
For most companies, including Kaiser Aluminum, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Kaiser Aluminum, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Kaiser Aluminum'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 Kaiser Aluminum's capital structure, the first step in the capital decision process is for the management of Kaiser Aluminum 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 Kaiser Aluminum to issue bonds at a reasonable cost.
Kaiser Aluminum Debt to Cash Allocation
Many companies such as Kaiser Aluminum, 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.
Kaiser Aluminum has accumulated 1.04 B in total debt with debt to equity ratio (D/E) of 54.5, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Kaiser Aluminum has a current ratio of 3.56, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Kaiser Aluminum until it has trouble settling it off, either with new capital or with free cash flow. So, Kaiser Aluminum'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 Kaiser Aluminum sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Kaiser to invest in growth at high rates of return. When we think about Kaiser Aluminum's use of debt, we should always consider it together with cash and equity.Kaiser Aluminum 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 Kaiser Aluminum's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Kaiser Aluminum, which in turn will lower the firm's financial flexibility.Kaiser Aluminum Corporate Bonds Issued
Most Kaiser bonds can be classified according to their maturity, which is the date when Kaiser Aluminum 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 Kaiser Aluminum Use of Financial Leverage
Kaiser Aluminum's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Kaiser Aluminum's total debt position, including all outstanding debt obligations, and compares it with Kaiser Aluminum's equity. Financial leverage can amplify the potential profits to Kaiser Aluminum's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Kaiser Aluminum is unable to cover its debt costs.
Kaiser Aluminum Corporation manufactures and sells semi-fabricated specialty aluminum mill products. Kaiser Aluminum Corporation was founded in 1946 and is headquartered in Foothill Ranch, California. KAISER ALUM operates under Aluminum classification in Germany and is traded on Frankfurt Stock Exchange. It employs 2875 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Kaiser Stock
When determining whether Kaiser Aluminum is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Kaiser Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Kaiser Aluminum Stock. Highlighted below are key reports to facilitate an investment decision about Kaiser Aluminum Stock:Check out the analysis of Kaiser Aluminum Fundamentals Over Time. For more detail on how to invest in Kaiser Stock please use our How to Invest in Kaiser Aluminum guide.You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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.