ProShares Russell 2000 404280DR7 Bond
| SMDV Etf | USD 75.88 0.91 1.21% |
ProShares Russell'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. ProShares Russell's financial risk is the risk to ProShares Russell 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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Given the importance of ProShares Russell's capital structure, the first step in the capital decision process is for the management of ProShares Russell 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 ProShares Russell 2000 to issue bonds at a reasonable cost.
| Popular Name | ProShares Russell HSBC Holdings PLC |
| Equity ISIN Code | US74347B6983 |
| Bond Issue ISIN Code | US404280DR76 |
| S&P Rating | Others |
| Maturity Date | 3rd of November 2028 |
| Issuance Date | 3rd of November 2022 |
| Coupon | 7.39 % |
ProShares Russell 2000 Outstanding Bond Obligations
Understaning ProShares Russell Use of Financial Leverage
Understanding the structure of ProShares Russell's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to ProShares Russell'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.
Under normal circumstances, the fund will invest at least 80 percent of its total assets in component securities of the index. Russell 2000 is traded on BATS Exchange in the United States. Please read more on our technical analysis page.
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Check out the analysis of ProShares Russell Fundamentals Over Time. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
The market value of ProShares Russell 2000 is measured differently than its book value, which is the value of ProShares that is recorded on the company's balance sheet. Investors also form their own opinion of ProShares Russell's value that differs from its market value or its book value, called intrinsic value, which is ProShares Russell's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because ProShares Russell's market value can be influenced by many factors that don't directly affect ProShares Russell's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between ProShares Russell's value and its price as these two are different measures arrived at by different means. Investors typically determine if ProShares Russell is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, ProShares Russell's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.
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.