Standard Motor Products Inc (SMP)

Financial leverage ratio

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Total assets	US$ in thousands	1,293,050	1,254,930	1,197,960	956,540	903,854
Total stockholders’ equity	US$ in thousands	635,064	610,020	601,580	550,236	504,228
Financial leverage ratio		2.04	2.06	1.99	1.74	1.79

December 31, 2023 calculation

Financial leverage ratio = Total assets ÷ Total stockholders’ equity
= $1,293,050K ÷ $635,064K
= 2.04

Standard Motor Products, Inc.'s financial leverage ratio has shown fluctuation over the past five years. The ratio increased from 1.74 in 2020 to 2.06 in 2022 before slightly decreasing to 2.04 in 2023. This indicates that the company's reliance on debt to finance its operations has been on the rise, with a brief decline in 2023.

A financial leverage ratio above 1 suggests that the company is predominantly using debt to finance its assets. Standard Motor Products, Inc. has consistently maintained a financial leverage ratio above 1 over the years, indicating a higher level of debt in its capital structure compared to equity. This can amplify returns when profitable but also increase financial risk due to interest payments and potential repayment obligations.

The trend of increasing financial leverage over the years may suggest management's strategic decision to utilize debt financing for growth or expansion. However, it is essential for investors and stakeholders to closely monitor the company's ability to service its debt obligations and manage the associated risks effectively. A high financial leverage ratio can make the company more vulnerable to economic downturns or unfavorable market conditions.