Hercules Capital Corporate Bonds and Leverage Analysis
| 19H Stock | EUR 19.82 0.70 3.66% |
Hercules Capital has over 1.13 Billion in debt which may indicate that it relies heavily on debt financing. . Hercules Capital's financial risk is the risk to Hercules Capital stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Hercules Capital'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. Hercules Capital'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 Hercules Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Hercules Capital's stakeholders.
For most companies, including Hercules Capital, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Hercules Capital, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Hercules Capital'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 Hercules Capital's capital structure, the first step in the capital decision process is for the management of Hercules Capital 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 Hercules Capital to issue bonds at a reasonable cost.
Hercules Capital Debt to Cash Allocation
Many companies such as Hercules Capital, 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.
Hercules Capital has accumulated 1.13 B in total debt with debt to equity ratio (D/E) of 114.1, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Hercules Capital has a current ratio of 2.47, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Hercules Capital until it has trouble settling it off, either with new capital or with free cash flow. So, Hercules Capital'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 Hercules Capital sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Hercules to invest in growth at high rates of return. When we think about Hercules Capital's use of debt, we should always consider it together with cash and equity.Hercules Capital 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 Hercules Capital's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Hercules Capital, which in turn will lower the firm's financial flexibility.Hercules Capital Corporate Bonds Issued
Most Hercules bonds can be classified according to their maturity, which is the date when Hercules Capital 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 Hercules Capital Use of Financial Leverage
Hercules Capital's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Hercules Capital's total debt position, including all outstanding debt obligations, and compares it with Hercules Capital's equity. Financial leverage can amplify the potential profits to Hercules Capital's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Hercules Capital is unable to cover its debt costs.
The firm specializing in providing venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development from startups, to expansion stage including select publicly listed companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancing and established-stage companies. Hercules Capital, Inc. was founded in December 2003 and is based in Palo Alto, California with additional offices in Hartford, Connecticut Boston, Massachusetts Elmhurst, Illinois Santa Monica, California McLean, Virginia New York, New York Radnor, Pennsylvania and Washington, District of Columbia. Hercules Capital operates under Specialty Finance classification in Germany and is traded on Frankfurt Stock Exchange. It employs 69 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Hercules Stock
When determining whether Hercules Capital offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Hercules Capital's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Hercules Capital Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Hercules Capital Stock:Check out the analysis of Hercules Capital Fundamentals Over Time. For more detail on how to invest in Hercules Stock please use our How to Invest in Hercules Capital guide.You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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.