Transocean Current Debt
| RIGG34 Stock | BRL 22.48 0.72 3.10% |
Transocean holds a debt-to-equity ratio of 0.665. With a high degree of financial leverage come high-interest payments, which usually reduce Transocean's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Transocean'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. Transocean'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 Transocean Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Transocean's stakeholders.
For most companies, including Transocean, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Transocean, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Transocean's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Transocean'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 Transocean 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 Transocean to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Transocean is said to be less leveraged. If creditors hold a majority of Transocean's assets, the Company is said to be highly leveraged.
Transocean |
Transocean Debt to Cash Allocation
Transocean has accumulated 6.66 B in total debt with debt to equity ratio (D/E) of 0.67, which is about average as compared to similar companies. Transocean has a current ratio of 1.95, which is within standard range for the sector. Debt can assist Transocean until it has trouble settling it off, either with new capital or with free cash flow. So, Transocean'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 Transocean sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Transocean to invest in growth at high rates of return. When we think about Transocean's use of debt, we should always consider it together with cash and equity.Transocean 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 Transocean's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Transocean, which in turn will lower the firm's financial flexibility.Understaning Transocean Use of Financial Leverage
Transocean's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Transocean's total debt position, including all outstanding debt obligations, and compares it with Transocean's equity. Financial leverage can amplify the potential profits to Transocean's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Transocean is unable to cover its debt costs.
Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company was founded in 1926 and is based in Steinhausen, Switzerland. TRANSOCEAN DRN is traded on Sao Paolo Stock Exchange in Brazil. Please read more on our technical analysis page.
Also Currently Popular
Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.Additional Information and Resources on Investing in Transocean Stock
When determining whether Transocean is a strong investment it is important to analyze Transocean'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 Transocean's future performance. For an informed investment choice regarding Transocean Stock, refer to the following important reports:Check out the analysis of Transocean Fundamentals Over Time. For information on how to trade Transocean Stock refer to our How to Trade Transocean Stock guide.You can also try the Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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.