Automatic Data Debt

ADP Stock  USD 291.76  2.75  0.95%   
Automatic Data Processing holds a debt-to-equity ratio of 1.395. At this time, Automatic Data's Total Debt To Capitalization is relatively stable compared to the past year. As of 03/14/2025, Debt Equity Ratio is likely to grow to 0.77, while Long Term Debt Total is likely to drop slightly above 2.1 B. . Automatic Data's financial risk is the risk to Automatic Data stockholders that is caused by an increase in debt.

Asset vs Debt

Equity vs Debt

Automatic Data'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. Automatic Data'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 Automatic Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Automatic Data's stakeholders.
For most companies, including Automatic Data, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Automatic Data Processing, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Automatic Data's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Price Book
23.5705
Book Value
12.48
Operating Margin
0.259
Profit Margin
0.1976
Return On Assets
0.0546
At this time, Automatic Data's Total Current Liabilities is relatively stable compared to the past year. As of 03/14/2025, Liabilities And Stockholders Equity is likely to grow to about 65.6 B, while Non Current Liabilities Total is likely to drop slightly above 4.8 B.
  
Check out the analysis of Automatic Data Fundamentals Over Time.

Automatic Data Bond Ratings

Automatic Data Processing financial ratings play a critical role in determining how much Automatic Data have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Automatic Data's borrowing costs.
Piotroski F Score
6
HealthyView
Beneish M Score
(2.27)
Unlikely ManipulatorView

Automatic Data Processing Debt to Cash Allocation

Automatic Data Processing has 3.71 B in debt with debt to equity (D/E) ratio of 1.4, which is OK given its current industry classification. Automatic Data Processing has a current ratio of 0.95, suggesting that it has not enough short term capital to pay financial commitments when the payables are due. Note however, debt could still be an excellent tool for Automatic to invest in growth at high rates of return.

Automatic Data Total Assets Over Time

Automatic Data Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Automatic Data uses debt to finance its assets. It includes both long-term and short-term borrowings maturing within one year. It also includes both tangible and intangible assets, such as goodwill.

Automatic Data Debt Ratio

    
  6.92   
It seems most of the Automatic Data's assets are financed through equity. 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 Automatic Data's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Automatic Data, which in turn will lower the firm's financial flexibility.

Automatic Data Corporate Bonds Issued

Automatic Short Long Term Debt Total

Short Long Term Debt Total

4.47 Billion

At this time, Automatic Data's Short and Long Term Debt Total is relatively stable compared to the past year.

Understaning Automatic Data Use of Financial Leverage

Automatic Data's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Automatic Data's current equity. If creditors own a majority of Automatic Data's assets, the company is considered highly leveraged. Understanding the composition and structure of Automatic Data's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Last ReportedProjected for Next Year
Short and Long Term Debt Total4.3 B4.5 B
Net Debt910.7 M956.2 M
Short Term Debt550.5 M506.5 M
Long Term Debt3.4 B3.6 B
Short and Long Term Debt346.9 M329.5 M
Long Term Debt Total3.4 B2.1 B
Net Debt To EBITDA 0.12  0.13 
Debt To Equity 0.73  0.77 
Interest Debt Per Share 8.91  9.36 
Debt To Assets 0.08  0.07 
Long Term Debt To Capitalization 0.36  0.37 
Total Debt To Capitalization 0.40  0.42 
Debt Equity Ratio 0.73  0.77 
Debt Ratio 0.08  0.07 
Cash Flow To Debt Ratio 1.01  0.96 
Please read more on our technical analysis page.

Pair Trading with Automatic Data

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Automatic Data position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Automatic Data will appreciate offsetting losses from the drop in the long position's value.

Moving together with Automatic Stock

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Moving against Automatic Stock

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The ability to find closely correlated positions to Automatic Data could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Automatic Data when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Automatic Data - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Automatic Data Processing to buy it.
The correlation of Automatic Data is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Automatic Data moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Automatic Data Processing moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Automatic Data can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching

Additional Tools for Automatic Stock Analysis

When running Automatic Data's price analysis, check to measure Automatic Data's 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 Automatic Data is operating at the current time. Most of Automatic Data's value examination focuses on studying past and present price action to predict the probability of Automatic Data's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Automatic Data's price. Additionally, you may evaluate how the addition of Automatic Data 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.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.