|
Liquidity & Leverage
Top originators in the commercial equipment leasing and finance industry are aware of how liquidity and leverage impact activity, approvals, and fundings within the market. These two ratios have been greatly affected, for most companies, by the current pandemic and therefore, are primary considerations for every transaction.
Financial liquidity
refers to how easily assets can be converted into cash. Assets like stocks and bonds are very liquid, since they can be converted to cash within days. However, large assets such as property, plant, and equipment are not as easily converted to cash. Cash
e
quivalence
is essential for the survival of most small and medium-size businesses. "CASH IS KING." Covid-19 has placed additional strain on financial liquidity for many clients. These strains have been temporarily diminished by government relief programs (ex: PPP funds, extensions on tax payments, etc.). Uncertainty remains regarding how small and medium-size businesses will emerge after the government programs wane, to what extent liquidity will impact a client's ability to resume full payments on existing debt, and more importantly, qualify for new transactions.
Liquidity = (Current Assets - Inventory) / Current Liability
Financial leverage refers to th
e
degree to which a company uses debt, in addition to its equity, to operate the company
.
Leverage
is employed to increase the return on equity.
The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage can negatively affect a company's ability to qualify for additional debt and will increase the cost of debt in higher yielding loans and leases.
Leverage
= Total Debt / Equity
Top originators in the commercial equipment leasing and finance industry are capable and willing to discuss liquidity and leverage concerns with their clients. They understand the powerful benefits of their products to assist in conserving today's cash position while creating manageable cash-flow payment streams that can be easily serviced over the term of the agreement. Top originators understand the positive influence that proper financial leverage provides to help their clients grow and prosper, while recognizing the negative impact of too much leverage. Top originators are more than sales representatives. They are financial advisors who protect the best interests of their companies and their clients.
Survive - Thrive - Lead
This "Sales Tip" is provided by Wheeler Business Consulting.
Comments, questions and suggestions regarding
weekly tips are welcome.
Phone: 410-877-0428
|
