La-Z-Boy Incorporated Corporate Bonds and Leverage Analysis
| LAZ Stock | EUR 42.80 0.60 1.38% |
La-Z-Boy Incorporated'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. La-Z-Boy Incorporated's financial risk is the risk to La-Z-Boy Incorporated 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).
La-Z-Boy |
Given the importance of La-Z-Boy Incorporated's capital structure, the first step in the capital decision process is for the management of La-Z-Boy Incorporated 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 La Z Boy Incorporated to issue bonds at a reasonable cost.
La-Z-Boy Incorporated Debt to Cash Allocation
Many companies such as La-Z-Boy Incorporated, eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
La Z Boy Incorporated has accumulated 199 K in total debt. La-Z-Boy Incorporated has a current ratio of 2.22, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist La-Z-Boy Incorporated until it has trouble settling it off, either with new capital or with free cash flow. So, La-Z-Boy Incorporated'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 La-Z-Boy Incorporated sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for La-Z-Boy to invest in growth at high rates of return. When we think about La-Z-Boy Incorporated's use of debt, we should always consider it together with cash and equity.La-Z-Boy Incorporated 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 La-Z-Boy Incorporated's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of La-Z-Boy Incorporated, which in turn will lower the firm's financial flexibility.La-Z-Boy Incorporated Corporate Bonds Issued
Most La-Z-Boy bonds can be classified according to their maturity, which is the date when La Z Boy Incorporated has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.
Understaning La-Z-Boy Incorporated Use of Financial Leverage
La-Z-Boy Incorporated's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures La-Z-Boy Incorporated's total debt position, including all outstanding debt obligations, and compares it with La-Z-Boy Incorporated's equity. Financial leverage can amplify the potential profits to La-Z-Boy Incorporated's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if La-Z-Boy Incorporated is unable to cover its debt costs.
La-Z-Boy Incorporated manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products in the United States, Canada, and internationally. La-Z-Boy Incorporated was founded in 1927 and is based in Monroe, Michigan. La Z operates under Home Furnishings Fixtures classification in Germany and is traded on Frankfurt Stock Exchange. It employs 9700 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in La-Z-Boy Stock
When determining whether La-Z-Boy Incorporated offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of La-Z-Boy Incorporated'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 La Z Boy Incorporated Stock. Outlined below are crucial reports that will aid in making a well-informed decision on La Z Boy Incorporated Stock:Check out the analysis of La-Z-Boy Incorporated Fundamentals Over Time. For more detail on how to invest in La-Z-Boy Stock please use our How to Invest in La-Z-Boy Incorporated guide.You can also try the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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.