Wendys Current Financial Leverage

WEN
 Stock
  

USD 22.55  0.25  1.12%   

Wendys' 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. Wendys' financial risk is the risk to Wendys 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).
Check out the analysis of Wendys Fundamentals Over Time.
  
Wendys Total Debt is quite stable at the moment as compared to the past year. The company's current value of Total Debt is estimated at 820.2 Million. Debt Current is expected to rise to about 26.8 M this year, although the value of Issuance Repayment of Debt Securities will most likely fall to (47 M).
Given the importance of Wendys' capital structure, the first step in the capital decision process is for the management of Wendys 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 Wendys Company to issue bonds at a reasonable cost.

Wendys Financial Leverage Rating

Wendys Company bond ratings play a critical role in determining how much Wendys 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 Wendys' borrowing costs.
Piotroski F Score
4  Poor
Beneish M Score

Wendys Company Debt to Cash Allocation

As Wendys Company follows its natural business cycle, the capital allocation decisions will not magically go away. Wendys' 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 has 4.32 B in debt. Wendys Company has a current ratio of 2.57, demonstrating that it is liquid and is capable to disburse its financial commitments when the payables are due. Debt can assist Wendys until it has trouble settling it off, either with new capital or with free cash flow. So, Wendys' 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 Wendys Company sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Wendys to invest in growth at high rates of return. When we think about Wendys' use of debt, we should always consider it together with cash and equity.

Wendys Inventories Over Time

Wendys Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Wendys 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.

Wendys Debt Ratio

    
  16.94   
It seems most of the Wendys' 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 Wendys' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Wendys, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a Wendys debt ratio should be compared their industry average or other competing firms.
Share Download
Share Download

Wendys Company Historical Liabilities

While analyzing the current debt level is an essential aspect of forecasting the current year budgeting needs of Wendys, understanding its historical liability is critical in projecting Wendys' 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 Wendys uses its financing power over time.
In order to fund their growth, businesses such as Wendys 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 Wendys' 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 Wendys Use of Financial Leverage

Wendys financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Wendys'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 Wendys assets, the company is considered highly leveraged. Understanding the composition and structure of overall Wendys 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 Debt652.1 M820.2 M
Debt Current26.1 M26.8 M
Debt Non Current631.7 M782.3 M
Issuance Repayment of Debt Securities-45.8 M-47 M
Long Term Debt to Equity 6.68  6.02 
Debt to Equity Ratio 6.77  6.10 
Please read more on our technical analysis page.

Be your own money manager

Our tools can tell you how much better you can do entering a position in Wendys without increasing your portfolio risk or giving up the expected return. As an individual investor, you need to find a reliable way to track all your investment portfolios. However, your requirements will often be based on how much of the process you decide to do yourself. In addition to allowing all investors analytical transparency into all their portfolios, our tools can evaluate risk-adjusted returns of your individual positions relative to your overall portfolio.

Did you try this?

Run Options Analysis Now

   

Options Analysis

Analyze and evaluate options and option chains as a potential hedge for your portfolios
All  Next Launch Module

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.
Check out the analysis of Wendys Fundamentals Over Time. Note that the Wendys Company information on this page should be used as a complementary analysis to other Wendys' 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.

Complementary Tools for Wendys Stock analysis

When running Wendys Company price analysis, check to measure Wendys' 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 Wendys is operating at the current time. Most of Wendys' value examination focuses on studying past and present price action to predict the probability of Wendys' future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Wendys' price. Additionally, you may evaluate how the addition of Wendys to your portfolios can decrease your overall portfolio volatility.
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Premium Stories
Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Headlines Timeline
Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity
Go
Is Wendys' 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 Wendys. If investors know Wendys 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 Wendys 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
0.32
Market Capitalization
4.7 B
Quarterly Revenue Growth YOY
0.15
Return On Assets
0.038
Return On Equity
0.38
The market value of Wendys Company is measured differently than its book value, which is the value of Wendys that is recorded on the company's balance sheet. Investors also form their own opinion of Wendys' value that differs from its market value or its book value, called intrinsic value, which is Wendys' 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 Wendys' market value can be influenced by many factors that don't directly affect Wendys' 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 Wendys' value and its price as these two are different measures arrived at by different means. Investors typically determine Wendys value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Wendys' 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.