Africa Oil Corp Corporate Bonds and Leverage Analysis
| AOI Stock | CAD 1.97 0.01 0.51% |
Africa Oil Corp holds a debt-to-equity ratio of 0.301. At this time, Africa Oil's Short and Long Term Debt Total is very stable compared to the past year. As of the 1st of December 2024, Debt To Equity is likely to grow to 0.18, though Net Debt is likely to grow to (220.4 M). With a high degree of financial leverage come high-interest payments, which usually reduce Africa Oil's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Africa Oil'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. Africa Oil'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 Africa Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Africa Oil's stakeholders.
For most companies, including Africa Oil, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Africa Oil Corp, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Africa Oil's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Price Book 1.1334 | Book Value 1.929 | Operating Margin (1.07) | Return On Assets (0.02) | Return On Equity (0.04) |
Africa |
Given the importance of Africa Oil's capital structure, the first step in the capital decision process is for the management of Africa Oil to decide how much external capital it will need to raise to operate in a sustainable way. Once the amount of financing is determined, management needs to examine the financial markets to determine the terms in which the company can boost capital. This move is crucial to the process because the market environment may reduce the ability of Africa Oil Corp to issue bonds at a reasonable cost.
Africa Oil Corp Debt to Cash Allocation
Africa Oil Corp has accumulated 71.6 M in total debt with debt to equity ratio (D/E) of 0.3, which may suggest the company is not taking enough advantage from borrowing. Africa Oil Corp has a current ratio of 1.89, which is within standard range for the sector. Debt can assist Africa Oil until it has trouble settling it off, either with new capital or with free cash flow. So, Africa Oil'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 Africa Oil Corp sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Africa to invest in growth at high rates of return. When we think about Africa Oil's use of debt, we should always consider it together with cash and equity.Africa Oil Total Assets Over Time
Africa Oil Assets Financed by Debt
The debt-to-assets ratio shows the degree to which Africa Oil 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.Africa Oil Debt Ratio | 17.0 |
Africa Oil Corporate Bonds Issued
Africa Short Long Term Debt Total
Short Long Term Debt Total |
|
Understaning Africa Oil Use of Financial Leverage
Leverage ratios show Africa Oil's total debt position, including all outstanding obligations. In simple terms, high financial leverage means that the cost of production, along with the day-to-day running of the business, is high. Conversely, lower financial leverage implies lower fixed cost investment in the business, which is generally considered a good sign by investors. The degree of Africa Oil's financial leverage can be measured in several ways, including ratios such as the debt-to-equity ratio (total debt / total equity), or the debt ratio (total debt / total assets).
| Last Reported | Projected for Next Year | ||
| Short and Long Term Debt Total | 162.9 M | 171.1 M | |
| Net Debt | -232 M | -220.4 M | |
| Net Debt To EBITDA | 7.27 | 6.91 | |
| Debt To Equity | 0.17 | 0.18 | |
| Interest Debt Per Share | 0.01 | 0.01 | |
| Debt To Assets | 0.18 | 0.17 | |
| Long Term Debt To Capitalization | 0.14 | 0.11 | |
| Total Debt To Capitalization | 0.14 | 0.15 | |
| Debt Equity Ratio | 0.17 | 0.18 | |
| Debt Ratio | 0.18 | 0.17 | |
| Cash Flow To Debt Ratio | (0.03) | (0.04) |
Pair Trading with Africa Oil
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 Africa Oil 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 Africa Oil will appreciate offsetting losses from the drop in the long position's value.The ability to find closely correlated positions to Africa Oil could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Africa Oil 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 Africa Oil - 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 Africa Oil Corp to buy it.
The correlation of Africa Oil is a statistical measure of how it moves in relation to other instruments. 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 Africa Oil moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Africa Oil Corp 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 Africa Oil 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.Other Information on Investing in Africa Stock
Africa Oil financial ratios help investors to determine whether Africa Stock is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Africa with respect to the benefits of owning Africa Oil security.
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.