McGrath RentCorp Corporate Bonds and Leverage Analysis
| MGRC Stock | USD 121.22 0.52 0.43% |
McGrath RentCorp holds a debt-to-equity ratio of 0.542. With a high degree of financial leverage come high-interest payments, which usually reduce McGrath RentCorp's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
McGrath RentCorp'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. McGrath RentCorp'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 McGrath Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect McGrath RentCorp's stakeholders.
For most companies, including McGrath RentCorp, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for McGrath RentCorp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, McGrath RentCorp's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
McGrath |
Given the importance of McGrath RentCorp's capital structure, the first step in the capital decision process is for the management of McGrath RentCorp 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 McGrath RentCorp to issue bonds at a reasonable cost.
McGrath RentCorp Debt to Cash Allocation
As McGrath RentCorp follows its natural business cycle, the capital allocation decisions will not magically go away. McGrath RentCorp's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors.
McGrath RentCorp currently holds 762.98 M in liabilities with Debt to Equity (D/E) ratio of 0.54, which is about average as compared to similar companies. McGrath RentCorp has a current ratio of 1.67, which is within standard range for the sector. Note, when we think about McGrath RentCorp's use of debt, we should always consider it together with its cash and equity.McGrath RentCorp 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 McGrath RentCorp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of McGrath RentCorp, which in turn will lower the firm's financial flexibility.McGrath RentCorp Corporate Bonds Issued
Most McGrath bonds can be classified according to their maturity, which is the date when McGrath RentCorp 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 McGrath RentCorp Use of Financial Leverage
McGrath RentCorp's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures McGrath RentCorp's total debt position, including all outstanding debt obligations, and compares it with McGrath RentCorp's equity. Financial leverage can amplify the potential profits to McGrath RentCorp's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if McGrath RentCorp is unable to cover its debt costs.
McGrath RentCorp operates as a business to business rental company in the United States and internationally. The company was incorporated in 1979 and is headquartered in Livermore, California. McGrath RentCorp operates under Rental Leasing Services classification in the United States and is traded on NASDAQ Exchange. It employs 1184 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.When determining whether McGrath RentCorp offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of McGrath RentCorp'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 Mcgrath Rentcorp Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Mcgrath Rentcorp Stock:Check out the analysis of McGrath RentCorp Fundamentals Over Time. For information on how to trade McGrath Stock refer to our How to Trade McGrath Stock guide.You can also try the Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
Is Business Services 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 McGrath RentCorp. If investors know McGrath 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 McGrath RentCorp 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 McGrath RentCorp is measured differently than its book value, which is the value of McGrath that is recorded on the company's balance sheet. Investors also form their own opinion of McGrath RentCorp's value that differs from its market value or its book value, called intrinsic value, which is McGrath RentCorp'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 McGrath RentCorp's market value can be influenced by many factors that don't directly affect McGrath RentCorp'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 McGrath RentCorp's value and its price as these two are different measures arrived at by different means. Investors typically determine if McGrath RentCorp is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, McGrath RentCorp'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.