STAG Industrial Corporate Bonds and Leverage Analysis
| SW6 Stock | EUR 34.46 0.26 0.75% |
STAG Industrial has over 2.32 Billion in debt which may indicate that it relies heavily on debt financing. . STAG Industrial's financial risk is the risk to STAG Industrial stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
STAG Industrial'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. STAG Industrial'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 STAG Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect STAG Industrial's stakeholders.
For most companies, including STAG Industrial, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for STAG Industrial, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, STAG Industrial'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 STAG Industrial's capital structure, the first step in the capital decision process is for the management of STAG Industrial 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 STAG Industrial to issue bonds at a reasonable cost.
STAG Industrial Debt to Cash Allocation
Many companies such as STAG Industrial, 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.
STAG Industrial has accumulated 2.32 B in total debt with debt to equity ratio (D/E) of 70.8, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. STAG Industrial has a current ratio of 1.33, which is within standard range for the sector. Debt can assist STAG Industrial until it has trouble settling it off, either with new capital or with free cash flow. So, STAG Industrial'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 STAG Industrial sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for STAG to invest in growth at high rates of return. When we think about STAG Industrial's use of debt, we should always consider it together with cash and equity.STAG Industrial 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 STAG Industrial's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of STAG Industrial, which in turn will lower the firm's financial flexibility.STAG Industrial Corporate Bonds Issued
Most STAG bonds can be classified according to their maturity, which is the date when STAG Industrial 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 STAG Industrial Use of Financial Leverage
STAG Industrial's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures STAG Industrial's total debt position, including all outstanding debt obligations, and compares it with STAG Industrial's equity. Financial leverage can amplify the potential profits to STAG Industrial's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if STAG Industrial is unable to cover its debt costs.
is an industrial real estate operating company focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. The Companys buildings were approximately 95.0 percent leased to 367 tenants as of June 30, 2019. STAGINDUTRIAL INC operates under REIT - Industrial classification in Germany and is traded on Frankfurt Stock Exchange. It employs 73 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in STAG Stock
When determining whether STAG Industrial is a strong investment it is important to analyze STAG Industrial's competitive position within its industry, examining market share, product or service uniqueness, and competitive advantages. Beyond financials and market position, potential investors should also consider broader economic conditions, industry trends, and any regulatory or geopolitical factors that may impact STAG Industrial's future performance. For an informed investment choice regarding STAG Stock, refer to the following important reports:Check out the analysis of STAG Industrial Fundamentals Over Time. For more detail on how to invest in STAG Stock please use our How to Invest in STAG Industrial guide.You can also try the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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.