New Mountain Finance Corporate Bonds and Leverage Analysis

NMFC Stock  USD 11.89  0.01  0.08%   
New Mountain Finance holds a debt-to-equity ratio of 1.464. At present, New Mountain's Long Term Debt is projected to increase significantly based on the last few years of reporting. The current year's Short Term Debt is expected to grow to about 177.3 M, whereas Short and Long Term Debt Total is forecasted to decline to about 1.3 B. With a high degree of financial leverage come high-interest payments, which usually reduce New Mountain's Earnings Per Share (EPS).

Asset vs Debt

Equity vs Debt

New Mountain'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. New Mountain'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 New Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect New Mountain's stakeholders.
For most companies, including New Mountain, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for New Mountain Finance, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, New Mountain's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Price Book
0.9412
Book Value
12.622
Operating Margin
0.7675
Profit Margin
0.3026
Return On Assets
0.0533
The current year's Total Current Liabilities is expected to grow to about 286.8 M, whereas Liabilities And Stockholders Equity is forecasted to decline to about 1.9 B.
  
Check out the analysis of New Mountain Fundamentals Over Time.
View Bond Profile
Given the importance of New Mountain's capital structure, the first step in the capital decision process is for the management of New Mountain 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 New Mountain Finance to issue bonds at a reasonable cost.

New Mountain Bond Ratings

New Mountain Finance financial ratings play a critical role in determining how much New Mountain have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for New Mountain's borrowing costs.
Piotroski F Score
5
HealthyView
Beneish M Score
(3.49)
Unlikely ManipulatorView

New Mountain Finance Debt to Cash Allocation

As New Mountain Finance follows its natural business cycle, the capital allocation decisions will not magically go away. New Mountain's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors.
New Mountain Finance currently holds 1.79 B in liabilities with Debt to Equity (D/E) ratio of 1.46, which is about average as compared to similar companies. New Mountain Finance has a current ratio of 2.44, suggesting that it is liquid enough and is able to pay its financial obligations when due. Note, when we think about New Mountain's use of debt, we should always consider it together with its cash and equity.

New Mountain Total Assets Over Time

New Mountain Assets Financed by Debt

The debt-to-assets ratio shows the degree to which New Mountain uses debt to finance its assets. It includes both long-term and short-term borrowings maturing within one year. It also includes both tangible and intangible assets, such as goodwill.

New Mountain Debt Ratio

    
  39.0   
It looks as if about 61% of New Mountain's assets are financed through equity. 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 New Mountain's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of New Mountain, which in turn will lower the firm's financial flexibility.

New Mountain Corporate Bonds Issued

Most New bonds can be classified according to their maturity, which is the date when New Mountain Finance 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.

New Net Debt

Net Debt

1.8 Billion

At present, New Mountain's Net Debt is projected to increase significantly based on the last few years of reporting.

Understaning New Mountain Use of Financial Leverage

New Mountain's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures New Mountain's total debt position, including all outstanding debt obligations, and compares it with New Mountain's equity. Financial leverage can amplify the potential profits to New Mountain's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if New Mountain is unable to cover its debt costs.
Last ReportedProjected for Next Year
Net Debt1.7 B1.8 B
Short and Long Term Debt Total1.8 B1.3 B
Long Term Debt1.2 B1.3 B
Short Term Debt119.4 M177.3 M
Short and Long Term Debt801.3 M768.3 M
Long Term Debt Total1.2 B1.3 B
Net Debt To EBITDA 22.54  23.67 
Debt To Equity 1.35  0.87 
Interest Debt Per Share 18.89  11.80 
Debt To Assets 0.57  0.39 
Long Term Debt To Capitalization 0.56  0.43 
Total Debt To Capitalization 0.57  0.40 
Debt Equity Ratio 1.35  0.87 
Debt Ratio 0.57  0.39 
Cash Flow To Debt Ratio 0.19  0.20 
Please read more on our technical analysis page.

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When determining whether New Mountain Finance offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of New Mountain'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 New Mountain Finance Stock. Outlined below are crucial reports that will aid in making a well-informed decision on New Mountain Finance Stock:
Check out the analysis of New Mountain Fundamentals Over Time.
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Is Asset Management & Custody Banks space expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of New Mountain. If investors know New will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about New Mountain listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Quarterly Earnings Growth
(0.19)
Dividend Share
1.28
Earnings Share
1.04
Revenue Per Share
3.557
Quarterly Revenue Growth
0.01
The market value of New Mountain Finance is measured differently than its book value, which is the value of New that is recorded on the company's balance sheet. Investors also form their own opinion of New Mountain's value that differs from its market value or its book value, called intrinsic value, which is New Mountain's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because New Mountain's market value can be influenced by many factors that don't directly affect New Mountain's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between New Mountain's value and its price as these two are different measures arrived at by different means. Investors typically determine if New Mountain is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, New Mountain's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

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.