China Eastern Debt
| CEADelisted Stock | USD 19.98 0.00 0.00% |
China Eastern Airlines has over 132.92 Billion in debt which may indicate that it relies heavily on debt financing. With a high degree of financial leverage come high-interest payments, which usually reduce China Eastern's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
China Eastern'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. China Eastern'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 China Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect China Eastern's stakeholders.
For most companies, including China Eastern, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for China Eastern Airlines, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, China Eastern's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that China Eastern'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 China Eastern 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 China Eastern to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, China Eastern is said to be less leveraged. If creditors hold a majority of China Eastern's assets, the Company is said to be highly leveraged.
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China Eastern Airlines Debt to Cash Allocation
As China Eastern Airlines follows its natural business cycle, the capital allocation decisions will not magically go away. China Eastern's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors.
China Eastern Airlines has 132.92 B in debt with debt to equity (D/E) ratio of 8.93, demonstrating that the company may be unable to create cash to meet all of its financial commitments. China Eastern Airlines has a current ratio of 0.3, suggesting that it has not enough short term capital to pay financial commitments when the payables are due. Note however, debt could still be an excellent tool for China to invest in growth at high rates of return. China Eastern 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 China Eastern's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of China Eastern, which in turn will lower the firm's financial flexibility.China Eastern Corporate Bonds Issued
Most China bonds can be classified according to their maturity, which is the date when China Eastern Airlines 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.
Understaning China Eastern Use of Financial Leverage
China Eastern's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures China Eastern's total debt position, including all outstanding debt obligations, and compares it with China Eastern's equity. Financial leverage can amplify the potential profits to China Eastern's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if China Eastern is unable to cover its debt costs.
China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry in the Peoples Republic of China, Hong Kong, Macau, Taiwan, and internationally. China Eastern Airlines Corporation Limited was founded in 1988 and is headquartered in Shanghai, the Peoples Republic of China. China Eastern operates under Airlines classification in the United States and is traded on New York Stock Exchange. It employs 80321 people. Please read more on our technical analysis page.
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Other Consideration for investing in China Stock
If you are still planning to invest in China Eastern Airlines 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 China Eastern's history and understand the potential risks before investing.
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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.