Bonanza Creek Energy 09778PAB1 Bond

Bonanza Creek Energy holds a debt-to-equity ratio of 0.164. With a high degree of financial leverage come high-interest payments, which usually reduce Bonanza Creek's Earnings Per Share (EPS).

Asset vs Debt

Equity vs Debt

Bonanza Creek'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. Bonanza Creek'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 Bonanza Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Bonanza Creek's stakeholders.
For most companies, including Bonanza Creek, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Bonanza Creek Energy, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Bonanza Creek's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
  
Check out Trending Equities to better understand how to build diversified portfolios. Also, note that the market value of any company could be closely tied with the direction of predictive economic indicators such as signals in income.
View Bond Profile
Popular NameBonanza Creek US09778PAB13
Equity ISIN CodeUS0977934001
Bond Issue ISIN CodeUS09778PAB13
S&P Rating
Others
Maturity DateOthers
Issuance DateOthers
View All Bonanza Creek Outstanding Bonds

Bonanza Creek Energy Outstanding Bond Obligations

Currently Active Assets on Macroaxis

Check out Trending Equities to better understand how to build diversified portfolios. Also, note that the market value of any company could be closely tied with the direction of predictive economic indicators such as signals in income.
You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

Other Consideration for investing in Bonanza Stock

If you are still planning to invest in Bonanza Creek Energy check if it may still be traded through OTC markets such as Pink Sheets or OTC Bulletin Board. You may also purchase it directly from the company, but this is not always possible and may require contacting the company directly. Please note that delisted stocks are often considered to be more risky investments, as they are no longer subject to the same regulatory and reporting requirements as listed stocks. Therefore, it is essential to carefully research the Bonanza Creek's history and understand the potential risks before investing.
Equity Forecasting
Use basic forecasting models to generate price predictions and determine price momentum
Price Ceiling Movement
Calculate and plot Price Ceiling Movement for different equity instruments
Portfolio Rebalancing
Analyze risk-adjusted returns against different time horizons to find asset-allocation targets
Earnings Calls
Check upcoming earnings announcements updated hourly across public exchanges
Portfolio Dashboard
Portfolio dashboard that provides centralized access to all your investments
Performance Analysis
Check effects of mean-variance optimization against your current asset allocation
Odds Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Economic Indicators
Top statistical indicators that provide insights into how an economy is performing

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.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.