Bank of America Debt
| BOFA Stock | 24.50 0.31 1.28% |
The current year's Net Debt is expected to grow to about 64.7 B, whereas Long Term Debt is forecasted to decline to about 299.7 B. . Bank of America's financial risk is the risk to Bank of America stockholders that is caused by an increase in debt.
Given that Bank of America's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Bank of America is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Bank of America to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Bank of America is said to be less leveraged. If creditors hold a majority of Bank of America's assets, the Company is said to be highly leveraged.
As of November 24, 2024, Total Current Liabilities is expected to decline to about 2.6 TBank |
Bank of America Total Assets Over Time
Bank of America 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 Bank of America's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Bank of America, which in turn will lower the firm's financial flexibility.Bank of America Corporate Bonds Issued
Most Bank bonds can be classified according to their maturity, which is the date when Bank of America has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.
Bank Net Debt
Net Debt |
|
Understaning Bank of America Use of Financial Leverage
Bank of America's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Bank of America's total debt position, including all outstanding debt obligations, and compares it with Bank of America's equity. Financial leverage can amplify the potential profits to Bank of America's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Bank of America is unable to cover its debt costs.
| Last Reported | Projected for Next Year | ||
| Net Debt | 58.9 B | 64.7 B | |
| Long Term Debt | 302.2 B | 299.7 B | |
| Short and Long Term Debt | 32.1 B | 27.8 B |
Pair Trading with Bank of America
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 Bank of America 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 Bank of America will appreciate offsetting losses from the drop in the long position's value.Moving together with Bank Stock
Moving against Bank Stock
The ability to find closely correlated positions to Bank of America could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Bank of America 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 Bank of America - 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 Bank of America to buy it.
The correlation of Bank of America 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 Bank of America moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Bank of America 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 Bank of America 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.Check out the analysis of Bank of America Fundamentals Over Time. For information on how to trade Bank Stock refer to our How to Trade Bank Stock guide.You can also try the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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.