Astra International Tbk Corporate Bonds and Leverage Analysis
| ASII Stock | IDR 5,150 25.00 0.48% |
Astra International Tbk holds a debt-to-equity ratio of 0.31. . Astra International's financial risk is the risk to Astra International stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Astra International'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. Astra International'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 Astra Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Astra International's stakeholders.
For most companies, including Astra International, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Astra International Tbk, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Astra International's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
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Given the importance of Astra International's capital structure, the first step in the capital decision process is for the management of Astra International 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 Astra International Tbk to issue bonds at a reasonable cost.
Astra International Tbk Debt to Cash Allocation
Astra International Tbk has accumulated 33.82 T in total debt with debt to equity ratio (D/E) of 0.31, which is about average as compared to similar companies. Astra International Tbk has a current ratio of 1.43, which is within standard range for the sector. Debt can assist Astra International until it has trouble settling it off, either with new capital or with free cash flow. So, Astra International'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 Astra International Tbk sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Astra to invest in growth at high rates of return. When we think about Astra International's use of debt, we should always consider it together with cash and equity.Astra International Assets Financed by Debt
Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Astra International's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Astra International, which in turn will lower the firm's financial flexibility.Astra International Corporate Bonds Issued
Understaning Astra International Use of Financial Leverage
Leverage ratios show Astra International'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 Astra International'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).
PT Astra International Tbk, together with its subsidiaries, operates in the automotive, financial services, heavy equipment, mining, construction, energy, agri, infrastructure and logistics, information technology, and property businesses in Indonesia. PT Astra International Tbk is a subsidiary of Jardine Cycle Carriage Limited. Astra International operates under Auto Parts classification in Indonesia and is traded on Jakarta Stock Exchange. It employs 129248 people. Please read more on our technical analysis page.
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Astra International financial ratios help investors to determine whether Astra 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 Astra with respect to the benefits of owning Astra International 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.