Nordic Semiconductor ASA Corporate Bonds and Leverage Analysis
| NDCVF Stock | USD 8.50 0.01 0.12% |
Nordic Semiconductor ASA holds a debt-to-equity ratio of 0.028. . Nordic Semiconductor's financial risk is the risk to Nordic Semiconductor stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Nordic Semiconductor'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. Nordic Semiconductor'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 Nordic Pink Sheet's retail investors understand whether an upcoming fall or rise in the market will negatively affect Nordic Semiconductor's stakeholders.
For most companies, including Nordic Semiconductor, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Nordic Semiconductor ASA, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Nordic Semiconductor'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 Nordic Semiconductor's capital structure, the first step in the capital decision process is for the management of Nordic Semiconductor 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 Nordic Semiconductor ASA to issue bonds at a reasonable cost.
Nordic Semiconductor ASA Debt to Cash Allocation
Many companies such as Nordic Semiconductor, 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.
Nordic Semiconductor ASA has accumulated 15.55 M in total debt with debt to equity ratio (D/E) of 0.03, which may suggest the company is not taking enough advantage from borrowing. Nordic Semiconductor ASA has a current ratio of 3.53, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Nordic Semiconductor until it has trouble settling it off, either with new capital or with free cash flow. So, Nordic Semiconductor'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 Nordic Semiconductor ASA sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Nordic to invest in growth at high rates of return. When we think about Nordic Semiconductor's use of debt, we should always consider it together with cash and equity.Nordic Semiconductor 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 Nordic Semiconductor's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Nordic Semiconductor, which in turn will lower the firm's financial flexibility.Understaning Nordic Semiconductor Use of Financial Leverage
Nordic Semiconductor's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Nordic Semiconductor's total debt position, including all outstanding debt obligations, and compares it with Nordic Semiconductor's equity. Financial leverage can amplify the potential profits to Nordic Semiconductor's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Nordic Semiconductor is unable to cover its debt costs.
Nordic Semiconductor ASA, a fabless semiconductor company, designs, develops, markets, and sells integrated circuits and related solutions for short-and long-range wireless applications in Europe, the Americas, and the AsiaPacific. The company was founded in 1983 and is headquartered in Trondheim, Norway. Nordic Vlsi operates under Semiconductors classification in the United States and is traded on OTC Exchange. It employs 1384 people. Please read more on our technical analysis page.
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Nordic Semiconductor financial ratios help investors to determine whether Nordic Pink Sheet is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Nordic with respect to the benefits of owning Nordic Semiconductor security.
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.