China Green Agriculture Corporate Bonds and Leverage Analysis
| CGADelisted Stock | USD 1.98 0.02 1.02% |
China Green Agriculture holds a debt-to-equity ratio of 0.05. With a high degree of financial leverage come high-interest payments, which usually reduce China Green's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
China Green'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 Green'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 Green's stakeholders.
For most companies, including China Green, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for China Green Agriculture, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, China Green'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 China Green's capital structure, the first step in the capital decision process is for the management of China Green 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 China Green Agriculture to issue bonds at a reasonable cost.
China Green Agriculture Debt to Cash Allocation
As China Green Agriculture follows its natural business cycle, the capital allocation decisions will not magically go away. China Green'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 Green Agriculture has 10.29 M in debt with debt to equity (D/E) ratio of 0.05, which may show that the company is not taking advantage of profits from borrowing. China Green Agriculture has a current ratio of 1.4, which is typical for the industry and considered as normal. Note however, debt could still be an excellent tool for China to invest in growth at high rates of return. China Green 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 Green's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of China Green, which in turn will lower the firm's financial flexibility.China Green Corporate Bonds Issued
Most China bonds can be classified according to their maturity, which is the date when China Green Agriculture 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 Green Use of Financial Leverage
China Green's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures China Green's total debt position, including all outstanding debt obligations, and compares it with China Green's equity. Financial leverage can amplify the potential profits to China Green's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if China Green is unable to cover its debt costs.
China Green Agriculture, Inc., through its subsidiaries, engages in the research, development, production, and sale of various fertilizers and agricultural products in the Peoples Republic of China. China Green Agriculture, Inc. was incorporated in 1987 and is based in Xian, the Peoples Republic of China. China Green operates under Agricultural Inputs classification in the United States and is traded on New York Stock Exchange. Please read more on our technical analysis page.
Also Currently Popular
Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.Check out the analysis of China Green Fundamentals Over Time. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Other Consideration for investing in China Stock
If you are still planning to invest in China Green Agriculture 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 Green'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.