Verizon Communications Current Financial Leverage

VZ
 Stock
  

USD 39.04  0.77  1.93%   

Verizon Communications' 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. Verizon Communications' financial risk is the risk to Verizon Communications 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).
Also, please take a look at the analysis of Verizon Communications Fundamentals Over Time.
  

Verizon Current Financial Burden

Verizon Communications' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Verizon Communications' 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 Verizon Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Verizon Communications' stakeholders.

Asset vs Debt

Equity vs Debt

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

Verizon Communications Financial Leverage Rating

Verizon Communications bond ratings play a critical role in determining how much Verizon Communications 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 Verizon Communications' borrowing costs.

Verizon Communications Debt to Cash Allocation

As Verizon Communications follows its natural business cycle, the capital allocation decisions will not magically go away. Verizon Communications' 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 179.18 B of total liabilities with total debt to equity ratio (D/E) of 2.05, which may imply that the company relies heavily on debt financing. Verizon Communications has a current ratio of 0.74, implying that it has not enough working capital to pay out debt commitments in time. Debt can assist Verizon Communications until it has trouble settling it off, either with new capital or with free cash flow. So, Verizon Communications' 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 Verizon Communications sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Verizon to invest in growth at high rates of return. When we think about Verizon Communications' use of debt, we should always consider it together with cash and equity.

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

Understaning Verizon Communications Use of Financial Leverage

Verizon Communications financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Verizon Communications'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 Verizon Communications assets, the company is considered highly leveraged. Understanding the composition and structure of overall Verizon Communications 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.
Verizon Communications Inc., through its subsidiaries, offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. Verizon Communications Inc. was incorporated in 1983 and is headquartered in New York, New York. Verizon Communications operates under Telecom Services classification in the United States and is traded on New York Stock Exchange. It employs 119400 people. Please read more on our technical analysis page.

Verizon Communications Implied Volatility

    
  35.94  
Verizon Communications' implied volatility exposes the market's sentiment of Verizon Communications stock's possible movements over time. However, it does not forecast the overall direction of its price. In a nutshell, if Verizon Communications' 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 Verizon Communications stock will not fluctuate a lot when Verizon Communications' 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 Verizon Communications 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, Verizon Communications' short interest history, or implied volatility extrapolated from Verizon Communications options trading.

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.
Also, please take a look at the analysis of Verizon Communications Fundamentals Over Time. Note that the Verizon Communications information on this page should be used as a complementary analysis to other Verizon Communications' 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

Complementary Tools for Verizon Stock analysis

When running Verizon Communications price analysis, check to measure Verizon Communications' 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 Verizon Communications is operating at the current time. Most of Verizon Communications' value examination focuses on studying past and present price action to predict the probability of Verizon Communications' future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Verizon Communications' price. Additionally, you may evaluate how the addition of Verizon Communications to your portfolios can decrease your overall portfolio volatility.
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
CEO Directory
Screen CEOs from public companies around the world
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Idea Analyzer
Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas
Go
Technical Analysis
Check basic technical indicators and analysis based on most latest market data
Go
Technical Analysis
Check basic technical indicators and analysis based on most latest market data
Go
Is Verizon Communications' 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 Verizon Communications. If investors know Verizon 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 Verizon Communications listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
The market value of Verizon Communications is measured differently than its book value, which is the value of Verizon that is recorded on the company's balance sheet. Investors also form their own opinion of Verizon Communications' value that differs from its market value or its book value, called intrinsic value, which is Verizon Communications' 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 Verizon Communications' market value can be influenced by many factors that don't directly affect Verizon Communications' 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 Verizon Communications' value and its price as these two are different measures arrived at by different means. Investors typically determine Verizon Communications value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Verizon Communications' 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.