Starbreeze AB Corporate Bonds and Leverage Analysis
| STAR-A Stock | SEK 0.24 0.01 4.35% |
Starbreeze AB has over 421.74 Million in debt which may indicate that it relies heavily on debt financing. With a high degree of financial leverage come high-interest payments, which usually reduce Starbreeze's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Starbreeze'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. Starbreeze'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 Starbreeze Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Starbreeze's stakeholders.
For most companies, including Starbreeze, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Starbreeze AB, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Starbreeze'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 Starbreeze's capital structure, the first step in the capital decision process is for the management of Starbreeze 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 Starbreeze AB to issue bonds at a reasonable cost.
Starbreeze AB Debt to Cash Allocation
Starbreeze AB has accumulated 421.74 M in total debt with debt to equity ratio (D/E) of 284.6, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Starbreeze AB has a current ratio of 0.23, 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 Starbreeze until it has trouble settling it off, either with new capital or with free cash flow. So, Starbreeze'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 Starbreeze AB sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Starbreeze to invest in growth at high rates of return. When we think about Starbreeze's use of debt, we should always consider it together with cash and equity.Starbreeze 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 Starbreeze's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Starbreeze, which in turn will lower the firm's financial flexibility.Starbreeze Corporate Bonds Issued
Most Starbreeze bonds can be classified according to their maturity, which is the date when Starbreeze AB 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 Starbreeze Use of Financial Leverage
Starbreeze's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Starbreeze's total debt position, including all outstanding debt obligations, and compares it with Starbreeze's equity. Financial leverage can amplify the potential profits to Starbreeze's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Starbreeze is unable to cover its debt costs.
Starbreeze AB operates as an independent creator, publisher, and distributor of entertainment products in Sweden, rest of Europe, the United States, and Asia. Starbreeze AB was founded in 1998 and is headquartered in Stockholm, Sweden. Starbreeze operates under Electronic Gaming Multimedia classification in Sweden and is traded on Stockholm Stock Exchange. It employs 580 people. Please read more on our technical analysis page.
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Starbreeze financial ratios help investors to determine whether Starbreeze 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 Starbreeze with respect to the benefits of owning Starbreeze 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.