Pharmacia Corp Current Debt
Pharmacia Corp holds a debt-to-equity ratio of 0.49. With a high degree of financial leverage come high-interest payments, which usually reduce Pharmacia Corp's Earnings Per Share (EPS).
Given that Pharmacia Corp's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Pharmacia Corp is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Pharmacia Corp to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Pharmacia Corp is said to be less leveraged. If creditors hold a majority of Pharmacia Corp's assets, the Company is said to be highly leveraged.
Pharmacia |
Pharmacia Corp Debt to Cash Allocation
As Pharmacia Corp follows its natural business cycle, the capital allocation decisions will not magically go away. Pharmacia Corp'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.
Pharmacia Corp has 2.21 B in debt with debt to equity (D/E) ratio of 0.49, which is OK given its current industry classification. Pharmacia Corp has a current ratio of 2.97, demonstrating that it is liquid and is capable to disburse its financial commitments when the payables are due. Note however, debt could still be an excellent tool for Pharmacia to invest in growth at high rates of return. Pharmacia Corp 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 Pharmacia Corp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Pharmacia Corp, which in turn will lower the firm's financial flexibility.Also Currently Popular
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.Check out Your Equity Center to better understand how to build diversified portfolios. Also, note that the market value of any company could be closely tied with the direction of predictive economic indicators such as signals in rate. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
Other Consideration for investing in Pharmacia Stock
If you are still planning to invest in Pharmacia Corp 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 Pharmacia Corp'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.