Meritage Hospitality Corporate Bonds and Leverage Analysis
| MHGUDelisted Stock | USD 19.75 0.28 1.44% |
Meritage Hospitality has over 165.38 Million in debt which may indicate that it relies heavily on debt financing. . Meritage Hospitality's financial risk is the risk to Meritage Hospitality stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Meritage Hospitality'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. Meritage Hospitality's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the OTC Stock is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Meritage OTC Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Meritage Hospitality's stakeholders.
For most companies, including Meritage Hospitality, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Meritage Hospitality Group, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Meritage Hospitality's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Meritage |
Given the importance of Meritage Hospitality's capital structure, the first step in the capital decision process is for the management of Meritage Hospitality 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 Meritage Hospitality Group to issue bonds at a reasonable cost.
Meritage Hospitality Debt to Cash Allocation
Meritage Hospitality Group currently holds 165.38 M in liabilities with Debt to Equity (D/E) ratio of 3.95, implying the company greatly relies on financing operations through barrowing. Meritage Hospitality has a current ratio of 0.6, indicating that it has a negative working capital and may not be able to pay financial obligations when due. Debt can assist Meritage Hospitality until it has trouble settling it off, either with new capital or with free cash flow. So, Meritage Hospitality'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 Meritage Hospitality sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Meritage to invest in growth at high rates of return. When we think about Meritage Hospitality's use of debt, we should always consider it together with cash and equity.Meritage Hospitality 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 Meritage Hospitality's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Meritage Hospitality, which in turn will lower the firm's financial flexibility.Meritage Hospitality Corporate Bonds Issued
Understaning Meritage Hospitality Use of Financial Leverage
Meritage Hospitality's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Meritage Hospitality's current equity. If creditors own a majority of Meritage Hospitality's assets, the company is considered highly leveraged. Understanding the composition and structure of Meritage Hospitality's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Meritage Hospitality Group Inc. operates quick-service and casual dining restaurants. Meritage Hospitality Group Inc. was incorporated in 1986 and is headquartered in Grand Rapids, Michigan. Meritage Hosp operates under Restaurants classification in the United States and is traded on OTC Exchange. It employs 330 people. Please read more on our technical analysis page.
Thematic Opportunities
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Check out Correlation Analysis to better understand how to build diversified portfolios. Also, note that the market value of any otc stock could be closely tied with the direction of predictive economic indicators such as signals in price. Note that the Meritage Hospitality information on this page should be used as a complementary analysis to other Meritage Hospitality's statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the CEOs Directory module to screen CEOs from public companies around the world.
Other Consideration for investing in Meritage OTC Stock
If you are still planning to invest in Meritage Hospitality 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 Meritage Hospitality's 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.