Devon Energy Current Debt
| D1VN34 Stock | BRL 194.40 1.80 0.92% |
Devon Energy holds a debt-to-equity ratio of 0.795. With a high degree of financial leverage come high-interest payments, which usually reduce Devon Energy's Earnings Per Share (EPS).
Given that Devon Energy'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 Devon Energy 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 Devon Energy to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Devon Energy is said to be less leveraged. If creditors hold a majority of Devon Energy's assets, the Company is said to be highly leveraged.
Devon |
Devon Energy Debt to Cash Allocation
Devon Energy has accumulated 6.79 B in total debt with debt to equity ratio (D/E) of 0.8, which is about average as compared to similar companies. Devon Energy has a current ratio of 0.98, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Debt can assist Devon Energy until it has trouble settling it off, either with new capital or with free cash flow. So, Devon Energy'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 Devon Energy sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Devon to invest in growth at high rates of return. When we think about Devon Energy's use of debt, we should always consider it together with cash and equity.Devon Energy 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 Devon Energy's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Devon Energy, which in turn will lower the firm's financial flexibility.Understaning Devon Energy Use of Financial Leverage
Devon Energy's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Devon Energy's total debt position, including all outstanding debt obligations, and compares it with Devon Energy's equity. Financial leverage can amplify the potential profits to Devon Energy's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Devon Energy is unable to cover its debt costs.
Devon Energy Corporation, an independent energy company, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. Devon Energy Corporation was founded in 1971 and is headquartered in Oklahoma City, Oklahoma. DEVON ENERGYDRN operates under Oil Gas EP classification in Brazil and is traded on Sao Paolo Stock Exchange. It employs 1400 people. Please read more on our technical analysis page.
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When determining whether Devon Energy offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Devon Energy'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 Devon Energy Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Devon Energy Stock:Check out the analysis of Devon Energy Fundamentals Over Time. For information on how to trade Devon Stock refer to our How to Trade Devon Stock guide.You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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.