Desktop Metal Current Financial Leverage

DM
 Stock
  

USD 1.96  0.05  2.62%   

Desktop Metal'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. Desktop Metal's financial risk is the risk to Desktop Metal 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).
Continue to the analysis of Desktop Metal Fundamentals Over Time.
  

Desktop Current Financial Burden

Desktop Metal'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. Desktop Metal'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 Desktop Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Desktop Metal's stakeholders.

Asset vs Debt

Equity vs Debt

For most companies, including Desktop Metal, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Desktop Metal the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Price Book
0.8
Book Value
2.54
Operating Margin
(1.06) 
Profit Margin
(2.43) 
Return On Assets
(0.13) 
Return On Equity
(0.59) 
Given that Desktop Metal'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 Desktop Metal 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 Desktop Metal to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Desktop Metal is said to be less leveraged. If creditors hold a majority of Desktop Metal's assets, the company is said to be highly leveraged.
Given the importance of Desktop Metal's capital structure, the first step in the capital decision process is for the management of Desktop Metal 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 Desktop Metal to issue bonds at a reasonable cost.

Desktop Metal Financial Leverage Rating

Desktop Metal bond ratings play a critical role in determining how much Desktop Metal 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 Desktop Metal's borrowing costs.

Desktop Metal Debt to Cash Allocation

As Desktop Metal follows its natural business cycle, the capital allocation decisions will not magically go away. Desktop Metal'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. Many companies 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.
The company reports 135.65 M of total liabilities with total debt to equity ratio (D/E) of 0.16, which may suggest the company is not taking enough advantage from financial leverage. Desktop Metal has a current ratio of 4.23, indicating that it is in good position to pay out its debt commitments in time. Debt can assist Desktop Metal until it has trouble settling it off, either with new capital or with free cash flow. So, Desktop Metal'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 Desktop Metal sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Desktop to invest in growth at high rates of return. When we think about Desktop Metal's use of debt, we should always consider it together with cash and equity.

Desktop Metal 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 Desktop Metal's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Desktop Metal, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Desktop Metal debt ratio should be compared their industry average or other competing firms.

Understaning Desktop Metal Use of Financial Leverage

Desktop Metal financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Desktop Metal's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Desktop Metal assets, the company is considered highly leveraged. Understanding the composition and structure of overall Desktop Metal debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it.
Desktop Metal, Inc. engages in manufacture and sale of additive manufacturing technologies for engineers, designers, and manufacturers in the Americas, Europe, the Middle East, Africa, and the Asia- Pacific. The company was founded in 2015 and is headquartered in Burlington, Massachusetts. Desktop Metal operates under Computer Hardware classification in the United States and is traded on New York Stock Exchange. It employs 1370 people. Please read more on our technical analysis page.

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Pair Trading with Desktop Metal

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Desktop Metal position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Desktop Metal will appreciate offsetting losses from the drop in the long position's value.

Moving against Desktop Metal

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The ability to find closely correlated positions to Desktop Metal could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Desktop Metal when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Desktop Metal - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Desktop Metal to buy it.
The correlation of Desktop Metal is a statistical measure of how it moves in relation to other equities. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Desktop Metal moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Desktop Metal moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Desktop Metal can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
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Continue to the analysis of Desktop Metal Fundamentals Over Time. You can also try Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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When running Desktop Metal price analysis, check to measure Desktop Metal'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 Desktop Metal is operating at the current time. Most of Desktop Metal's value examination focuses on studying past and present price action to predict the probability of Desktop Metal's future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Desktop Metal's price. Additionally, you may evaluate how the addition of Desktop Metal to your portfolios can decrease your overall portfolio volatility.
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Is Desktop Metal's industry 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 Desktop Metal. If investors know Desktop 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 Desktop Metal listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Market Capitalization
606.6 M
Quarterly Revenue Growth YOY
0.85
Return On Assets
(0.13) 
Return On Equity
(0.59) 
The market value of Desktop Metal is measured differently than its book value, which is the value of Desktop that is recorded on the company's balance sheet. Investors also form their own opinion of Desktop Metal's value that differs from its market value or its book value, called intrinsic value, which is Desktop Metal'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 Desktop Metal's market value can be influenced by many factors that don't directly affect Desktop Metal'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 Desktop Metal's value and its price as these two are different measures arrived at by different means. Investors typically determine Desktop Metal value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Desktop Metal'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.