Catalent Current Financial Leverage

CTLT Stock  USD 57.98  0.16  0.28%   
Catalent'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. Catalent's financial risk is the risk to Catalent 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

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

Catalent Quarterly Net Debt

4.78 Billion

For most companies, including Catalent, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Catalent 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
2.7912
Book Value
20.269
Operating Margin
(0.11)
Profit Margin
(0.32)
Return On Assets
(0.01)
Given that Catalent'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 Catalent 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 Catalent to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Catalent is said to be less leveraged. If creditors hold a majority of Catalent's assets, the Company is said to be highly leveraged.
At this time, Catalent's Debt Current is comparatively stable as compared to the past year. Issuance Repayment of Debt Securities is likely to gain to about 601.8 M in 2024, whereas Total Debt is likely to drop slightly above 4.6 B in 2024.
  
Check out the analysis of Catalent Fundamentals Over Time.
For more information on how to buy Catalent Stock please use our How to Invest in Catalent guide.

Catalent Financial Leverage Rating

Catalent bond ratings play a critical role in determining how much Catalent 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 Catalent's borrowing costs.
Piotroski F Score
7  Strong
Beneish M Score

Catalent Debt to Cash Allocation

As Catalent follows its natural business cycle, the capital allocation decisions will not magically go away. Catalent'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 4.85 B in liabilities with Debt to Equity (D/E) ratio of 0.9, which is about average as compared to similar companies. Catalent has a current ratio of 2.8, suggesting that it is liquid enough and is able to pay its financial obligations when due. Debt can assist Catalent until it has trouble settling it off, either with new capital or with free cash flow. So, Catalent'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 Catalent sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Catalent to invest in growth at high rates of return. When we think about Catalent's use of debt, we should always consider it together with cash and equity.

Catalent Inventories Over Time

Catalent Assets Financed by Debt

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

Catalent Debt Ratio

    
  46.66   
It appears slightly above 53% of Catalent's 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 Catalent's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Catalent, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a Catalent debt ratio should be compared their industry average or other competing firms.

Catalent Historical Liabilities

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

Catalent financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Catalent'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 Catalent assets, the company is considered highly leveraged. Understanding the composition and structure of overall Catalent 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 Catalent'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 Catalent'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 ReportedProjected for 2024
Total Debt5.6 B4.6 B
Debt Current616.4 M665.1 M
Debt Non CurrentB4.3 B
Issuance Repayment of Debt Securities557.8 M601.8 M
Long Term Debt to Equity 1.08  1.58 
Debt to Equity Ratio 1.54  1.66 
Please read more on our technical analysis page.

Catalent Investors Sentiment

The influence of Catalent's investor sentiment on the probability of its price appreciation or decline could be a good factor in your decision-making process regarding taking a position in Catalent. The overall investor sentiment generally increases the direction of a stock movement in a one-year investment horizon. However, the impact of investor sentiment on the entire stock market does not have solid backing from leading economists and market statisticians.
Investor biases related to Catalent's public news can be used to forecast risks associated with an investment in Catalent. The trend in average sentiment can be used to explain how an investor holding Catalent can time the market purely based on public headlines and social activities around Catalent. Please note that most equities that are difficult to arbitrage are affected by market sentiment the most.
Catalent's market sentiment shows the aggregated news analyzed to detect positive and negative mentions from the text and comments. The data is normalized to provide daily scores for Catalent's and other traded tickers. The bigger the bubble, the more accurate is the estimated score. Higher bars for a given day show more participation in the average Catalent's news discussions. The higher the estimated score, the more favorable is the investor's outlook on Catalent.
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 Catalent 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, Catalent's short interest history, or implied volatility extrapolated from Catalent options trading.

Pair Trading with Catalent

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Catalent position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Catalent will appreciate offsetting losses from the drop in the long position's value.

Moving against Catalent Stock

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The ability to find closely correlated positions to Catalent could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Catalent when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Catalent - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Catalent to buy it.
The correlation of Catalent is a statistical measure of how it moves in relation to other equities. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Catalent moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Catalent moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Catalent can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching
When determining whether Catalent is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Catalent Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Catalent Stock. Highlighted below are key reports to facilitate an investment decision about Catalent Stock:
Check out the analysis of Catalent Fundamentals Over Time.
For more information on how to buy Catalent Stock please use our How to Invest in Catalent guide.
You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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When running Catalent's price analysis, check to measure Catalent'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 Catalent is operating at the current time. Most of Catalent's value examination focuses on studying past and present price action to predict the probability of Catalent's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Catalent's price. Additionally, you may evaluate how the addition of Catalent to your portfolios can decrease your overall portfolio volatility.
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Is Catalent'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 Catalent. If investors know Catalent 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 Catalent 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
(0.15)
Earnings Share
(7.18)
Revenue Per Share
22.623
Quarterly Revenue Growth
(0.10)
Return On Assets
(0.01)
The market value of Catalent is measured differently than its book value, which is the value of Catalent that is recorded on the company's balance sheet. Investors also form their own opinion of Catalent's value that differs from its market value or its book value, called intrinsic value, which is Catalent'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 Catalent's market value can be influenced by many factors that don't directly affect Catalent'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 Catalent's value and its price as these two are different measures arrived at by different means. Investors typically determine if Catalent is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Catalent'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.