Prudential Financial Corporate Bonds and Leverage Analysis
| PLL Stock | EUR 122.00 0.15 0.12% |
Prudential Financial has over 19.98 Billion in debt which may indicate that it relies heavily on debt financing. . Prudential Financial's financial risk is the risk to Prudential Financial stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Prudential Financial'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. Prudential Financial'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 Prudential Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Prudential Financial's stakeholders.
For most companies, including Prudential Financial, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Prudential Financial, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Prudential Financial'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 Prudential Financial's capital structure, the first step in the capital decision process is for the management of Prudential Financial 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 Prudential Financial to issue bonds at a reasonable cost.
Prudential Financial Debt to Cash Allocation
Many companies such as Prudential Financial, 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.
Prudential Financial has accumulated 19.98 B in total debt with debt to equity ratio (D/E) of 66.0, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Prudential Financial has a current ratio of 0.69, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Debt can assist Prudential Financial until it has trouble settling it off, either with new capital or with free cash flow. So, Prudential Financial'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 Prudential Financial sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Prudential to invest in growth at high rates of return. When we think about Prudential Financial's use of debt, we should always consider it together with cash and equity.Prudential Financial 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 Prudential Financial's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Prudential Financial, which in turn will lower the firm's financial flexibility.Prudential Financial Corporate Bonds Issued
Most Prudential bonds can be classified according to their maturity, which is the date when Prudential Financial 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 Prudential Financial Use of Financial Leverage
Prudential Financial's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Prudential Financial's total debt position, including all outstanding debt obligations, and compares it with Prudential Financial's equity. Financial leverage can amplify the potential profits to Prudential Financial's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Prudential Financial is unable to cover its debt costs.
Prudential Financial, Inc., through its subsidiaries, provides insurance, investment management, and other financial products and services. Prudential Financial, Inc. was founded in 1875 and is headquartered in Newark, New Jersey. PRUDENTIAL FINL operates under Insurance - Life classification in Germany and is traded on Frankfurt Stock Exchange. It employs 50492 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Prudential Stock
When determining whether Prudential Financial is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Prudential Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Prudential Financial Stock. Highlighted below are key reports to facilitate an investment decision about Prudential Financial Stock:Check out the analysis of Prudential Financial Fundamentals Over Time. For more detail on how to invest in Prudential Stock please use our How to Invest in Prudential Financial guide.You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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.