For Immediate Release
Chicago, IL – January 14, 2021 – Stocks in this week’s article are The Procter & Gamble Company PG, MarineMax, Inc. HZO, Saia, Inc. SAIA, Quanex Building Products Corporation NX and Cooper Tire & Rubber Company CTB.
Buy These 5 Low Leverage Stocks to Avoid Debt-Related Woes
Each and every company needs substantial amount of funds, technically referred to as capital, to run its operations smoothly and expand the same. Here comes the concept of leverage, which, in terms of corporate finance, refers to the use of borrowed capital since no company can run endlessly on its own funds.
Now this borrowed capital can be obtained by a firm either through debt or through equity. Empirically, it has been found that most companies prefer debt financing over equity financing because of its easy and cheap availability.
Yet, debt financing has its share of drawbacks. In particular, when the amount of debt a company bears becomes exorbitant, debt financing turns into a burden. This is because a high degree of financial leverage means high interest payments, which affect the company's bottom line.
Although the stock market has improved to some extent from the initial slump immediately after COVID-19 struck the world economy, any other uncertainty can once again disrupt that balance.
So, to avoid huge losses at times of crisis, a prudent investor should choose stocks that bear low leverage since a debt-free corporation is rare to find. Therefore, measuring the leverage level of a particular stock forms an integral part of a safe investment procedure.
Several leverage ratios have been developed to measure the amount of debt a company bears and the debt-to-equity ratio is one of the most common ratios.
Debt-to-Equity Ratio = Total Liabilities/Shareholders’ Equity
This metric is a liquidity ratio that indicates the amount of financial risk a company bears. A company with a lower debt-to-equity ratio shows improved solvency for a company.
With the year 2020 almost at its end, investors might be eyeing stocks that have exhibited solid earnings growth year to date. But if a stock bears a high debt-to-equity ratio, in times of economic downturns, its so-called booming earnings picture might turn into a nightmare.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1245813/buy-these-5-low-leverage-stocks-to-avoid-debt-related-woes
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Cooper Tire & Rubber Company (CTB) : Free Stock Analysis Report
Procter & Gamble Company The (PG) : Free Stock Analysis Report
MarineMax, Inc. (HZO) : Free Stock Analysis Report
Quanex Building Products Corporation (NX) : Free Stock Analysis Report
Saia, Inc. (SAIA) : Free Stock Analysis Report
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