Honda Current Financial Leverage
HMC Stock | USD 37.11 0.21 0.56% |
Honda Motor holds a debt-to-equity ratio of 0.745. At present, Honda's Short Term Debt is projected to increase significantly based on the last few years of reporting. The current year's Long Term Debt is expected to grow to about 5.3 T, whereas Net Debt is forecasted to decline to about 2.7 T. Honda's financial risk is the risk to Honda 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).
Asset vs Debt
Equity vs Debt
Honda'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. Honda'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 Honda Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Honda's stakeholders.
Honda Quarterly Net Debt |
|
For most companies, including Honda, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Honda Motor Co 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 0.7566 | Book Value 2.5 K | Operating Margin 0.0705 | Profit Margin 0.0484 | Return On Assets 0.0272 |
Given that Honda'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 Honda 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 Honda to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Honda is said to be less leveraged. If creditors hold a majority of Honda's assets, the Company is said to be highly leveraged.
At present, Honda's Short Term Debt is projected to increase significantly based on the last few years of reporting. The current year's Long Term Debt is expected to grow to about 5.3 T, whereas Net Debt is forecasted to decline to about 2.7 T. Honda |
Honda Financial Leverage Rating
Honda Motor Co bond ratings play a critical role in determining how much Honda 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 Honda's borrowing costs.Piotroski F Score | 7 Strong |
Beneish M Score | -2.95 Unlikely Manipulator |
Honda Motor Debt to Cash Allocation
As Honda Motor Co follows its natural business cycle, the capital allocation decisions will not magically go away. Honda'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 has 7.67 T in debt with debt to equity (D/E) ratio of 0.75, which is OK given its current industry classification. Honda Motor has a current ratio of 1.44, which is typical for the industry and considered as normal. Debt can assist Honda until it has trouble settling it off, either with new capital or with free cash flow. So, Honda'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 Honda Motor sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Honda to invest in growth at high rates of return. When we think about Honda's use of debt, we should always consider it together with cash and equity.Honda Total Assets Over Time
Honda 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 Honda's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Honda, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Honda debt ratio should be compared their industry average or other competing firms.Honda Short Long Term Debt Total
Short Long Term Debt Total |
|
Understaning Honda Use of Financial Leverage
Honda financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Honda'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 Honda assets, the company is considered highly leveraged. Understanding the composition and structure of overall Honda 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. Financial leverage can amplify the potential profits to Honda's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Honda's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Last Reported | Projected for 2024 | ||
Short and Long Term Debt Total | 8.8 T | 9.3 T | |
Net Debt | 4.4 T | 2.7 T | |
Short Term Debt | 3.8 T | 4 T | |
Long Term Debt | 5 T | 5.3 T | |
Short and Long Term Debt | 3.8 T | 3 T | |
Long Term Debt Total | 5 T | 4.2 T | |
Long Term Debt To Capitalization | 0.28 | 0.25 | |
Total Debt To Capitalization | 0.41 | 0.37 | |
Debt Equity Ratio | 0.61 | 0.70 | |
Debt Ratio | 0.28 | 0.26 | |
Cash Flow To Debt Ratio | 0.32 | 0.24 |
Building efficient market-beating portfolios requires time, education, and a lot of computing power!
The Portfolio Architect is an AI-driven system that provides multiple benefits to our users by leveraging cutting-edge machine learning algorithms, statistical analysis, and predictive modeling to automate the process of asset selection and portfolio construction, saving time and reducing human error for individual and institutional investors.
Try AI Portfolio ArchitectCheck out the analysis of Honda Fundamentals Over Time. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
Complementary Tools for Honda Stock analysis
When running Honda's price analysis, check to measure Honda'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 Honda is operating at the current time. Most of Honda's value examination focuses on studying past and present price action to predict the probability of Honda's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Honda's price. Additionally, you may evaluate how the addition of Honda to your portfolios can decrease your overall portfolio volatility.
Money Managers Screen money managers from public funds and ETFs managed around the world | |
Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings |
Is Honda'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 Honda. If investors know Honda 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 Honda 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 0.081 | Dividend Share 49 | Earnings Share 3.78 | Revenue Per Share 11.8 K | Quarterly Revenue Growth 0.214 |
The market value of Honda Motor is measured differently than its book value, which is the value of Honda that is recorded on the company's balance sheet. Investors also form their own opinion of Honda's value that differs from its market value or its book value, called intrinsic value, which is Honda'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 Honda's market value can be influenced by many factors that don't directly affect Honda'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 Honda's value and its price as these two are different measures arrived at by different means. Investors typically determine if Honda is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Honda'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.