Servotronics Corporate Bonds and Leverage Analysis
| SVT Stock | USD 11.07 0.36 3.15% |
Servotronics holds a debt-to-equity ratio of 0.018. . Servotronics' financial risk is the risk to Servotronics stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Servotronics' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Servotronics' 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 Servotronics Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Servotronics' stakeholders.
For most companies, including Servotronics, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Servotronics, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Servotronics' management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Servotronics |
Given the importance of Servotronics' capital structure, the first step in the capital decision process is for the management of Servotronics 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 Servotronics to issue bonds at a reasonable cost.
Servotronics Debt to Cash Allocation
Servotronics has 2.1 M in debt with debt to equity (D/E) ratio of 0.02, which may show that the company is not taking advantage of profits from borrowing. Servotronics has a current ratio of 5.87, demonstrating that it is liquid and is capable to disburse its financial commitments when the payables are due. Note however, debt could still be an excellent tool for Servotronics to invest in growth at high rates of return.Servotronics 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 Servotronics' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Servotronics, which in turn will lower the firm's financial flexibility.Servotronics Corporate Bonds Issued
Understaning Servotronics Use of Financial Leverage
Servotronics' financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Servotronics' current equity. If creditors own a majority of Servotronics' assets, the company is considered highly leveraged. Understanding the composition and structure of Servotronics' outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Servotronics, Inc. designs, manufactures, and markets control components and consumer products in the United States and internationally. The company was incorporated in 1959 and is headquartered in Elma, New York. Servotronics operates under Electrical Equipment Parts classification in the United States and is traded on AMEX Exchange. It employs 268 people. Please read more on our technical analysis page.
Thematic Opportunities
Explore Investment Opportunities
Additional Tools for Servotronics Stock Analysis
When running Servotronics' price analysis, check to measure Servotronics' 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 Servotronics is operating at the current time. Most of Servotronics' value examination focuses on studying past and present price action to predict the probability of Servotronics' future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Servotronics' price. Additionally, you may evaluate how the addition of Servotronics 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.