Newtek Business Services Corporate Bonds and Leverage Analysis
| NEWTZ Stock | USD 24.80 0.12 0.49% |
Newtek Business Services has over 644.12 Million in debt which may indicate that it relies heavily on debt financing. With a high degree of financial leverage come high-interest payments, which usually reduce Newtek Business' Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Newtek Business' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Newtek Business' 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 Newtek Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Newtek Business' stakeholders.
For most companies, including Newtek Business, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Newtek Business Services, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Newtek Business' management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Newtek |
Given the importance of Newtek Business' capital structure, the first step in the capital decision process is for the management of Newtek Business 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 Newtek Business Services to issue bonds at a reasonable cost.
Newtek Business Services Debt to Cash Allocation
As Newtek Business Services follows its natural business cycle, the capital allocation decisions will not magically go away. Newtek Business' 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.
Newtek Business Services has accumulated 644.12 M in total debt with debt to equity ratio (D/E) of 89.8, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Newtek Business Services has a current ratio of 2.25, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Note, when we think about Newtek Business' use of debt, we should always consider it together with its cash and equity.Newtek Business 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 Newtek Business' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Newtek Business, which in turn will lower the firm's financial flexibility.Newtek Business Corporate Bonds Issued
Understaning Newtek Business Use of Financial Leverage
Understanding the structure of Newtek Business' debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Newtek Business' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Newtek Business Services Corp. is a business development company specializing in providing financial and business services to the small-and medium-sized business market in the United States. Newtek Business Services Corp., formerly known as Newtek Business Services Inc., was incorporated on August 26, 2013 and is headquartered in Lake Success, New York with additional offices in Garden City, New York Miami, Florida Milwaukee, Wisconsin New Orleans, Louisiana and New York, New York. Newtek Business is traded on NASDAQ General Markets in USA. Please read more on our technical analysis page.
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When running Newtek Business' price analysis, check to measure Newtek Business' market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Newtek Business is operating at the current time. Most of Newtek Business' value examination focuses on studying past and present price action to predict the probability of Newtek Business' future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Newtek Business' price. Additionally, you may evaluate how the addition of Newtek Business to your portfolios can decrease your overall portfolio volatility.
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.