CONAGRA FOODS Current Debt
| CAO Stock | EUR 25.92 0.55 2.08% |
CONAGRA FOODS's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. CONAGRA FOODS's financial risk is the risk to CONAGRA FOODS stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Given that CONAGRA FOODS's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which CONAGRA FOODS is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of CONAGRA FOODS to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, CONAGRA FOODS is said to be less leveraged. If creditors hold a majority of CONAGRA FOODS's assets, the Company is said to be highly leveraged.
CONAGRA |
CONAGRA FOODS 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 CONAGRA FOODS's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of CONAGRA FOODS, which in turn will lower the firm's financial flexibility.Understaning CONAGRA FOODS Use of Financial Leverage
CONAGRA FOODS's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures CONAGRA FOODS's total debt position, including all outstanding debt obligations, and compares it with CONAGRA FOODS's equity. Financial leverage can amplify the potential profits to CONAGRA FOODS's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if CONAGRA FOODS is unable to cover its debt costs.
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When determining whether CONAGRA FOODS is a strong investment it is important to analyze CONAGRA FOODS'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 CONAGRA FOODS's future performance. For an informed investment choice regarding CONAGRA Stock, refer to the following important reports:Check out the analysis of CONAGRA FOODS Fundamentals Over Time. For information on how to trade CONAGRA Stock refer to our How to Trade CONAGRA Stock guide.You can also try the Equity Valuation module to check real value of public entities based on technical and fundamental 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.