USDATA CORP Current Financial Leverage

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USDATA CORP'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. USDATA CORP's financial risk is the risk to USDATA CORP 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).
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USDATA Current Financial Burden

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

Asset vs Debt

Equity vs Debt

For most companies, including USDATA CORP, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running USDATA CORP 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.
Given that USDATA CORP'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 USDATA CORP 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 USDATA CORP to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, USDATA CORP is said to be less leveraged. If creditors hold a majority of USDATA CORP's assets, the company is said to be highly leveraged.
Given the importance of USDATA CORP's capital structure, the first step in the capital decision process is for the management of USDATA CORP 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 USDATA CORP to issue bonds at a reasonable cost.

USDATA CORP Financial Leverage Rating

USDATA CORP bond ratings play a critical role in determining how much USDATA CORP 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 USDATA CORP's borrowing costs.

USDATA CORP Debt to Cash Allocation

As USDATA CORP follows its natural business cycle, the capital allocation decisions will not magically go away. USDATA CORP'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 892 K in liabilities with Debt to Equity (D/E) ratio of 0.83, which is about average as compared to similar companies. USDATA CORP has a current ratio of 0.85, indicating that it has a negative working capital and may not be able to pay financial obligations when due. Debt can assist USDATA CORP until it has trouble settling it off, either with new capital or with free cash flow. So, USDATA CORP'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 USDATA CORP sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for USDATA to invest in growth at high rates of return. When we think about USDATA CORP's use of debt, we should always consider it together with cash and equity.

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

Understaning USDATA CORP Use of Financial Leverage

USDATA CORP financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures USDATA CORP'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 USDATA CORP assets, the company is considered highly leveraged. Understanding the composition and structure of overall USDATA CORP 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.
USDATA Corp. operates as an independent, global supplier of industrial automation software tools, applications, and consulting services designed to provide businesses with the knowledge and control needed to perfect the products they produce and the processes they manage. USDATA Corp. was founded in 1974 and is based in Richardson, Texas. USDATA CORP is traded on OTC Exchange in the United States. Please read more on our technical analysis page.

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Also, please take a look at World Market Map. Note that the USDATA CORP information on this page should be used as a complementary analysis to other USDATA CORP'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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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When running USDATA CORP price analysis, check to measure USDATA CORP'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 USDATA CORP is operating at the current time. Most of USDATA CORP's value examination focuses on studying past and present price action to predict the probability of USDATA CORP's future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move USDATA CORP's price. Additionally, you may evaluate how the addition of USDATA CORP to your portfolios can decrease your overall portfolio volatility.
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Please note, there is a significant difference between USDATA CORP's value and its price as these two are different measures arrived at by different means. Investors typically determine USDATA CORP value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, USDATA CORP'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.