Mastrad Corporate Bonds and Leverage Analysis

ALMAS Stock  EUR 0.01  0  14.89%   
Mastrad has over 3.05 Million in debt which may indicate that it relies heavily on debt financing. . Mastrad's financial risk is the risk to Mastrad stockholders that is caused by an increase in debt.

Asset vs Debt

Equity vs Debt

Mastrad'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. Mastrad'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 Mastrad Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Mastrad's stakeholders.
For most companies, including Mastrad, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Mastrad, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Mastrad's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
  
Check out the analysis of Mastrad Fundamentals Over Time.
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Given the importance of Mastrad's capital structure, the first step in the capital decision process is for the management of Mastrad 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 Mastrad to issue bonds at a reasonable cost.

Mastrad Debt to Cash Allocation

Mastrad has accumulated 3.05 M in total debt with debt to equity ratio (D/E) of 52.6, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Mastrad has a current ratio of 1.23, suggesting that it is in a questionable position to pay out its financial obligations in time and when they become due. Debt can assist Mastrad until it has trouble settling it off, either with new capital or with free cash flow. So, Mastrad'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 Mastrad sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Mastrad to invest in growth at high rates of return. When we think about Mastrad's use of debt, we should always consider it together with cash and equity.

Mastrad 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 Mastrad's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Mastrad, which in turn will lower the firm's financial flexibility.

Mastrad Corporate Bonds Issued

Understaning Mastrad Use of Financial Leverage

Mastrad's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Mastrad's current equity. If creditors own a majority of Mastrad's assets, the company is considered highly leveraged. Understanding the composition and structure of Mastrad's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Mastrad Socit Anonyme designs and markets culinary accessories in France, the United States, Hong Kong, and internationally. The company was founded in 1994 and is based in Paris, France. MASTRAD operates under Household Personal Products classification in France and is traded on Paris Stock Exchange. It employs 28 people.
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Additional Tools for Mastrad Stock Analysis

When running Mastrad's price analysis, check to measure Mastrad'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 Mastrad is operating at the current time. Most of Mastrad's value examination focuses on studying past and present price action to predict the probability of Mastrad's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Mastrad's price. Additionally, you may evaluate how the addition of Mastrad 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.