Stolt Nielsen Limited Corporate Bonds and Leverage Analysis
| SNI Stock | NOK 280.00 1.00 0.36% |
Stolt Nielsen Limited has over 1.86 Billion in debt which may indicate that it relies heavily on debt financing. . Stolt Nielsen's financial risk is the risk to Stolt Nielsen stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Stolt Nielsen'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. Stolt Nielsen'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 Stolt Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Stolt Nielsen's stakeholders.
For most companies, including Stolt Nielsen, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Stolt Nielsen Limited, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Stolt Nielsen'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 Stolt Nielsen's capital structure, the first step in the capital decision process is for the management of Stolt Nielsen 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 Stolt Nielsen Limited to issue bonds at a reasonable cost.
Stolt Nielsen Limited Debt to Cash Allocation
Many companies such as Stolt Nielsen, 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.
Stolt Nielsen Limited has accumulated 1.86 B in total debt with debt to equity ratio (D/E) of 173.7, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Stolt Nielsen Limited has a current ratio of 0.57, 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 Stolt Nielsen until it has trouble settling it off, either with new capital or with free cash flow. So, Stolt Nielsen'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 Stolt Nielsen Limited sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Stolt to invest in growth at high rates of return. When we think about Stolt Nielsen's use of debt, we should always consider it together with cash and equity.Stolt Nielsen 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 Stolt Nielsen's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Stolt Nielsen, which in turn will lower the firm's financial flexibility.Stolt Nielsen Corporate Bonds Issued
Understaning Stolt Nielsen Use of Financial Leverage
Leverage ratios show Stolt Nielsen's total debt position, including all outstanding obligations. In simple terms, high financial leverage means that the cost of production, along with the day-to-day running of the business, is high. Conversely, lower financial leverage implies lower fixed cost investment in the business, which is generally considered a good sign by investors. The degree of Stolt Nielsen's financial leverage can be measured in several ways, including ratios such as the debt-to-equity ratio (total debt / total equity), or the debt ratio (total debt / total assets).
Stolt-Nielsen Limited, together with its subsidiaries, provides transportation, storage, and distribution solutions for chemicals and other bulk-liquid products worldwide. The company was founded in 1959 and is based in London, the United Kingdom. STOLT NIELSEN operates under Shipping Ports classification in Norway and is traded on Oslo Stock Exchange. It employs 6340 people. Please read more on our technical analysis page.
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Stolt Nielsen financial ratios help investors to determine whether Stolt Stock is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Stolt with respect to the benefits of owning Stolt Nielsen security.
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.