Humana AB Corporate Bonds and Leverage Analysis
Humana AB has over 4.7 Billion in debt which may indicate that it relies heavily on debt financing. . Humana AB's financial risk is the risk to Humana AB stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Humana AB'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. Humana AB'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 Humana Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Humana AB's stakeholders.
For most companies, including Humana AB, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Humana AB, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Humana AB'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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Humana AB Debt to Cash Allocation
Humana AB has accumulated 4.7 B in total debt with debt to equity ratio (D/E) of 200.8, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Humana AB has a current ratio of 0.77, 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 Humana AB until it has trouble settling it off, either with new capital or with free cash flow. So, Humana AB'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 Humana AB sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Humana to invest in growth at high rates of return. When we think about Humana AB's use of debt, we should always consider it together with cash and equity.Humana AB 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 Humana AB's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Humana AB, which in turn will lower the firm's financial flexibility.Understaning Humana AB Use of Financial Leverage
Humana AB's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Humana AB's current equity. If creditors own a majority of Humana AB's assets, the company is considered highly leveraged. Understanding the composition and structure of Humana AB's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Humana AB , together with its subsidiaries, provides individual and family care services for children, adolescents, and adults in Sweden, Norway, Denmark, and Finland. Humana AB was founded in 2001 and is headquartered in Stockholm, Sweden. Humana AB operates under Personal Services classification in Sweden and is traded on Stockholm Stock Exchange. It employs 11238 people. Please read more on our technical analysis page.
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Check out Risk vs Return Analysis to better understand how to build diversified portfolios. Also, note that the market value of any company could be closely tied with the direction of predictive economic indicators such as various price indices. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
Other Tools for Humana Stock
When running Humana AB's price analysis, check to measure Humana AB'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 Humana AB is operating at the current time. Most of Humana AB's value examination focuses on studying past and present price action to predict the probability of Humana AB's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Humana AB's price. Additionally, you may evaluate how the addition of Humana AB to your portfolios can decrease your overall portfolio volatility.
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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.