Altair Engineering Current Financial Leverage

ALTR
 Stock
  

USD 56.41  1.09  1.97%   

Altair Engineering'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. Altair Engineering's financial risk is the risk to Altair Engineering 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).
Please continue to the analysis of Altair Engineering Fundamentals Over Time.
  
Altair Engineering Debt Current is relatively stable at the moment as compared to the past year. Altair Engineering reported last year Debt Current of 209.64 Million. As of 08/14/2022, Debt Non Current is likely to grow to about 20.1 M, while Issuance Repayment of Debt Securities is likely to drop (30.8 M).

Altair Current Financial Burden

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

Asset vs Debt

Equity vs Debt

For most companies, including Altair Engineering, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Altair Engineering 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
8.09
Book Value
6.98
Operating Margin
0.0383
Profit Margin
-0.0573
Return On Assets
0.0136
Return On Equity
-0.0663
Given that Altair Engineering'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 Altair Engineering 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 Altair Engineering to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Altair Engineering is said to be less leveraged. If creditors hold a majority of Altair Engineering's assets, the company is said to be highly leveraged.

Altair Engineering Quarterly Debt to Equity Ratio

1.022

Given the importance of Altair Engineering's capital structure, the first step in the capital decision process is for the management of Altair Engineering 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 Altair Engineering to issue bonds at a reasonable cost.

Altair Engineering Financial Leverage Rating

Altair Engineering bond ratings play a critical role in determining how much Altair Engineering 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 Altair Engineering's borrowing costs.
Piotroski F Score
6  Healthy
Beneish M Score

Altair Engineering Debt to Cash Allocation

As Altair Engineering follows its natural business cycle, the capital allocation decisions will not magically go away. Altair Engineering'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 currently holds 254.98 M in liabilities with Debt to Equity (D/E) ratio of 0.41, which is about average as compared to similar companies. Altair Engineering has a current ratio of 1.26, suggesting that it is in a questionable position to pay out its financial obligations when due. Debt can assist Altair Engineering until it has trouble settling it off, either with new capital or with free cash flow. So, Altair Engineering'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 Altair Engineering sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Altair to invest in growth at high rates of return. When we think about Altair Engineering's use of debt, we should always consider it together with cash and equity.

Altair Engineering Inventories Over Time

Altair Engineering Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Altair Engineering 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.

Altair Engineering Debt Ratio

    
  20.63   
It seems most of the Altair Engineering'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 Altair Engineering's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Altair Engineering, which in turn will lower the firm's financial flexibility. Like all other financial ratios, an Altair Engineering debt ratio should be compared their industry average or other competing firms.
Share Download
Share Download

Altair Engineering Historical Liabilities

While analyzing the current debt level is an essential aspect of forecasting the current year budgeting needs of Altair Engineering, understanding its historical liability is critical in projecting Altair Engineering's future earnings, especially during periods of low and high inflation and deflation. Many analysts look at the trend in assets and liabilities and evaluate how Altair Engineering uses its financing power over time.
In order to fund their growth, businesses such as Altair Engineering widely use Financial Leverage. For most companies, financial capital is raised by issuing debt securities and by selling common stock. The debt and equity that make up Altair Engineering's capital structure have many risks and return implications. Leverage is an investment strategy of using borrowed money to increase the potential return of an investment. Please note, 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.

Understaning Altair Engineering Use of Financial Leverage

Altair Engineering financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Altair Engineering'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 Altair Engineering assets, the company is considered highly leveraged. Understanding the composition and structure of overall Altair Engineering 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.
Last ReportedProjected for 2022
Total Debt229.2 M194.3 M
Debt Current209.6 M226.2 M
Debt Non Current19.6 M20.1 M
Issuance Repayment of Debt Securities-30 M-30.8 M
Long Term Debt to Equity 0.45  0.35 
Debt to Equity Ratio 0.90  0.97 
Altair Engineering Inc., together with its subsidiaries, provides software and cloud solutions in the areas of simulation, high-performance computing, data analytics, and artificial intelligence worldwide. Altair Engineering Inc. was incorporated in 1985 and is headquartered in Troy, Michigan. Altair Engineering operates under SoftwareInfrastructure classification in the United States and is traded on NASDAQ Exchange. It employs 3050 people.
Please read more on our technical analysis page.

Altair Engineering Investors Sentiment

The influence of Altair Engineering's investor sentiment on the probability of its price appreciation or decline could be a good factor in your decision-making process regarding taking a position in Altair. The overall investor sentiment generally increases the direction of a stock movement in a one-year investment horizon. However, the impact of investor sentiment on the entire stock markets does not have a solid backing from leading economists and market statisticians.
Investor biases related to Altair Engineering's public news can be used to forecast risks associated with investment in Altair. The trend in average sentiment can be used to explain how an investor holding Altair can time the market purely based on public headlines and social activities around Altair Engineering. Please note that most equiteis that are difficult to arbitrage are affected by market sentiment the most.
Altair Engineering's market sentiment shows the aggregated news analyzed to detect positive and negative mentions from the text and comments. The data is normalized to provide daily scores for Altair Engineering's and other traded tickers. The bigger the bubble, the more accurate is the estimated score. Higher bars for a given day show more participation in the average Altair Engineering's news discussions. The higher the estimate score, the more favorable is the investor's outlook on Altair Engineering.

Altair Engineering Implied Volatility

    
  20.81  
Altair Engineering's implied volatility exposes the market's sentiment of Altair Engineering stock's possible movements over time. However, it does not forecast the overall direction of its price. In a nutshell, if Altair Engineering's implied volatility is high, the market thinks the stock has potential for high price swings in either direction. On the other hand, the low implied volatility suggests that Altair Engineering stock will not fluctuate a lot when Altair Engineering's options are near their expiration.
Some investors attempt to determine whether the market's mood is bullish or bearish by monitoring changes in market sentiment. Unlike more traditional methods such as technical analysis, investor sentiment usually refers to the aggregate attitude towards Altair Engineering in the overall investment community. So, suppose investors can accurately measure the market's sentiment. In that case, they can use it for their benefit. For example, some tools to gauge market sentiment could be utilized using contrarian indexes, Altair Engineering's short interest history, or implied volatility extrapolated from Altair Engineering options trading.
Please continue to the analysis of Altair Engineering Fundamentals Over Time. Note that the Altair Engineering information on this page should be used as a complementary analysis to other Altair Engineering's statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

Complementary Tools for Altair Stock analysis

When running Altair Engineering price analysis, check to measure Altair Engineering'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 Altair Engineering is operating at the current time. Most of Altair Engineering's value examination focuses on studying past and present price action to predict the probability of Altair Engineering's future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Altair Engineering's price. Additionally, you may evaluate how the addition of Altair Engineering to your portfolios can decrease your overall portfolio volatility.
Fundamentals Comparison
Compare fundamentals across multiple equities to find investing opportunities
Go
Content Syndication
Quickly integrate customizable finance content to your own investment portal
Go
Money Flow Index
Determine momentum by analyzing Money Flow Index and other technical indicators
Go
Aroon Oscillator
Analyze current equity momentum using Aroon Oscillator and other momentum ratios
Go
Portfolio Suggestion
Get suggestions outside of your existing asset allocation including your own model portfolios
Go
Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Watchlist Optimization
Optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm
Go
Premium Stories
Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Price Exposure Probability
Analyze equity upside and downside potential for a given time horizon across multiple markets
Go
Portfolio Holdings
Check your current holdings and cash postion to detemine if your portfolio needs rebalancing
Go
Is Altair Engineering'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 Altair Engineering. If investors know Altair 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 Altair Engineering 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 YOY
-0.28
Market Capitalization
4.5 B
Quarterly Revenue Growth YOY
0.11
Return On Assets
0.0136
Return On Equity
-0.0663
The market value of Altair Engineering is measured differently than its book value, which is the value of Altair that is recorded on the company's balance sheet. Investors also form their own opinion of Altair Engineering's value that differs from its market value or its book value, called intrinsic value, which is Altair Engineering'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 Altair Engineering's market value can be influenced by many factors that don't directly affect Altair Engineering'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 Altair Engineering's value and its price as these two are different measures arrived at by different means. Investors typically determine Altair Engineering value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Altair Engineering'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.