Early Year Planning and Leveraging Capital

The new year has begun but there’s still time to make big changes. Taking the time to reflect on how to improve your business will allow you to make informed decisions that will help you reach your goals.

By leveraging capital and planning revenue goals, you have the potential to make 2023 an incredibly successful year for your business.

Past Finances

One of the best ways to evaluate how your financial situation is progressing this year is to review your most recent quarter. Doing so can provide valuable insights into the success and performance of your investments, as well as identify any areas where you may need to make changes in order to improve upon your current financial standing. Taking a thorough look at your most recent quarter can help you assess the overall health of your investments and make changes as needed to improve upon them. Additionally, it is a good idea to look at past quarters in order to gain perspective on where you have been and where you may need to head in the future.

When reviewing your most recent quarter, there are several important factors to look at. First, you should analyze the performance of your investments. Consider how much money they have earned or lost so far this quarter, as well as the rate of return that each has produced. You should also consider any changes in their value since the beginning of the quarter and why these may have occurred. This will help you determine if it is time to make any changes in your portfolio.

It is also important to consider the cost of investing when reviewing your most recent quarter. Evaluate how much you are paying for investment fees and commissions, as well as any other costs associated with investing such as taxes or custodial fees. These expenses can eat away at your bottom line, so it is important to assess them.

Finally, it is important to evaluate the risk associated with your investments. Consider the amount of volatility that each has experienced over the past quarter and decide if this is acceptable or if you should adjust your portfolio accordingly. Pay attention to any news events that may have affected the value of your investments and determine whether they are likely to have a positive or negative effect on your portfolio in the future.

Financial Leverage 101

Financial leverage is a technique used by individuals and companies to multiply their potential returns from investments. It involves borrowing capital to increase the potential returns of an investment by increasing the amount of money being invested. By doing this, investors can access more lucrative opportunities than they could if they were relying solely on their own funds.

At its core, financial leverage is quite simple. When an investor puts down a small amount of money to purchase an investment, they can borrow from other sources to increase their total investment amount. The borrowed funds are then used to make more investments or purchases. This “extra” money allows the investor to gain additional returns on their investments if those investments perform well.

Leverage is a powerful tool used by both investors and companies to maximize their returns. Investors use leverage to increase the return on their investments by taking on more risk. For example, they may borrow money to buy stocks or bonds, increasing their potential returns while also increasing their potential losses. Companies also use leverage to increase their profits by using debt to finance investments, such as purchasing new equipment or expanding operations. By taking on debt, companies can increase their profits but also take on more risk of defaulting on the loan if their business does not perform as expected.

Investors who are not comfortable utilizing leverage directly have a variety of options to gain exposure to it indirectly. They can invest in companies that use leverage in the normal course of their business to finance or expand operations, without increasing their outlay.

Calculating Leverage

Leverage ratios are an important indicator of a company’s use of debt to maximize profits. These ratios measure the extent to which a company is using borrowed money, or leverage, relative to the assets it owns.

Some common leverage ratios are:

  • Debt-to-Assets Ratio = Total Debt / Total Assets

The Debt-to-Assets Ratio is a calculation that helps measure the financial health of a business by comparing their total liabilities to their total assets. To calculate this ratio, you take the sum of all outstanding debt and divide it by the sum of all assets. A higher ratio indicates that a business is more heavily leveraged and has taken on greater risk, while a lower ratio suggests that the company is in a better financial position. The Debt-to-Assets Ratio can be used to assess the solvency of a business as well as its ability to pay back its creditors. Business owners can also use it to assess their own financial situation and make decisions about how best to manage their debt levels.

  • Debt-to-Equity Ratio = Total Debt / Total Equity

The Debt-to-Equity Ratio is a financial metric used to evaluate the amount of debt a company has relative to its total equity. It is calculated by taking a company’s total liabilities and dividing it by its shareholders’ equity. This ratio can give investors insight into a company’s long-term financial health and risk profile. A higher Debt-to-Equity Ratio indicates a company is more leveraged and may have taken on too much debt. On the other hand, a low ratio could indicate that the company is not taking advantage of opportunities to increase their investment potential.

  • Debt-to-EBITDA = Total Debt / Earnings Before Interest, Taxes, Depreciation, and Amortization

Debt-to-EBITDA is a financial ratio that measures the amount of debt a company has compared to their earnings before interest, taxes, depreciation, and amortization (EBITDA). It is used by investors to compare companies with similar debt levels and helps them assess a company’s ability to cover its debt obligations with earnings. Debt-to-EBITDA can also be used to measure the debt load of a company relative to its industry peers. By examining the relationship between debt and profitability, investors can gain insight into a company’s overall financial health and help them determine whether it is an attractive investment opportunity.

Advantages of Leverage

Investors and traders use leverage primarily to amplify profits and gain an edge in the markets. By using leverage, traders can take advantage of smaller price movements as well as benefit from higher returns on their investments. In addition, using leverage allows you to access more expensive investment options that you wouldn’t otherwise have had access to with a smaller amount of upfront capital.

Leverage can be an incredibly powerful tool for short-term, low risk situations when high degrees of capital are needed to finance projects or invest in the stock market. As opposed to using additional capital to gamble on risky endeavors, leverage enables smart companies to execute opportunities at ideal moments with the intention of exiting their levered position quickly.