For Immediate Release
Chicago, IL – October 7, 2019 - Stocks in this week’s article are MDU Resources Group (MDU - Free Report) , Gibraltar Industries (ROCK - Free Report) , Chemed Corp. (CHE - Free Report) , Federal Signal Corp. (FSS - Free Report) and SolarEdge Technologies (SEDG - Free Report) .
Buy These 5 Low Leverage Stocks to Stay Afloat in Crisis
In corporate finance, leverage is the use of exogenous funds by corporations to run their operations smoothly and expand the same. Historically debt financing has been preferred over equity financing.
This is because when a company resorts to debt financing, it takes on fixed expenses in the form of interest payments for a specific time period.
However, in case of equity financing, a shareholder not only becomes a partial owner of the company but develops a direct claim on the company’s future profits as well. So, debt financing remains the preferred option for corporates.
However, one should keep in mind that debt financing remains a feasible option as long as the companies succeed in generating a higher rate of return compared to the interest rate. Exorbitant debt financing might even lead to a corporation’s bankruptcy in a worst case scenario.
Considering the fact that uncertainty can hit the share market any moment, it is better to take measures beforehand than repent later. This is why investors need to look for stocks that are relatively less leveraged, since a corporation with zero debt hardly exists.
And here comes the importance of leverage ratios, which can measure the exact amount of debt risk a company bears. Debt-to-equity ratio is one such measure, perhaps the most popular one, to evaluate a company’s creditworthiness for potential equity investments.
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.
As the third-quarter reporting season is knocking on the door, investors must be eyeing stocks that exhibited solid earnings growth in the prior quarters. But if a stock bears a high debt-to-equity ratio, in times of economic crisis, its so-called booming earnings picture might turn into a nightmare.
Thus, it will be wise for investors to select companies with low leverage.
These are financially more secure and immune to financial bankruptcy.
For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/549218/buy-these-5-low-leverage-stocks-to-stay-afloat-in-crisis
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