Purple Beverage Corporate Bonds and Leverage Analysis
Purple Beverage's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Purple Beverage's financial risk is the risk to Purple Beverage stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
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Purple Beverage Debt to Cash Allocation
Many companies such as Purple Beverage, 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.
Purple Beverage currently holds 593 K in liabilities. Purple Beverage has a current ratio of 0.35, indicating that it has a negative working capital and may not be able to pay financial obligations when due. Note, when we think about Purple Beverage's use of debt, we should always consider it together with its cash and equity.Purple Beverage 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 Purple Beverage's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Purple Beverage, which in turn will lower the firm's financial flexibility.Purple Beverage Corporate Bonds Issued
Understaning Purple Beverage Use of Financial Leverage
Understanding the structure of Purple Beverage's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Purple Beverage's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Purple Beverage Company, Inc. develops, markets, and distributes functional beverage products in the United States. Purple Beverage Company, Inc. was founded in 2007 and is based in Fort Lauderdale, Florida. PURPLE BEVERAGE operates under BeveragesNon-Alcoholic classification in the United States and is traded on PNK Exchange. It employs 15 people. Please read more on our technical analysis page.
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When running Purple Beverage's price analysis, check to measure Purple Beverage's 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 Purple Beverage is operating at the current time. Most of Purple Beverage's value examination focuses on studying past and present price action to predict the probability of Purple Beverage's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Purple Beverage's price. Additionally, you may evaluate how the addition of Purple Beverage 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.