Calamos Convertible Corporate Bonds and Leverage Analysis
CHI Fund | USD 10.57 0.28 2.58% |
Calamos Convertible holds a debt-to-equity ratio of 0.609. With a high degree of financial leverage come high-interest payments, which usually reduce Calamos Convertible's Earnings Per Share (EPS).
Calamos |
Given the importance of Calamos Convertible's capital structure, the first step in the capital decision process is for the management of Calamos Convertible 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 Calamos Convertible Opportunities to issue bonds at a reasonable cost.
Calamos Convertible Debt to Cash Allocation
Calamos Convertible Opportunities has 531.8 M in debt with debt to equity (D/E) ratio of 0.61, which is OK given its current industry classification. Calamos Convertible has a current ratio of 11.95, demonstrating that it is liquid and is capable to disburse its financial commitments when the payables are due. Debt can assist Calamos Convertible until it has trouble settling it off, either with new capital or with free cash flow. So, Calamos Convertible'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 Calamos Convertible sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Calamos to invest in growth at high rates of return. When we think about Calamos Convertible's use of debt, we should always consider it together with cash and equity.
Calamos Convertible 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 Calamos Convertible's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Calamos Convertible, which in turn will lower the firm's financial flexibility.Calamos Convertible Corporate Bonds Issued
Most Calamos bonds can be classified according to their maturity, which is the date when Calamos Convertible Opportunities 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 Calamos Convertible Use of Financial Leverage
Understanding the composition and structure of Calamos Convertible's debt gives an idea of how risky is the capital structure of the business and if it is worth investing in it. The degree of Calamos Convertible's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Calamos Convertible Opportunities and Income Fund is a closed ended fixed income mutual fund launched by Calamos Investments LLC. It is managed by Calamos Advisors LLC. The fund invests in the fixed income markets of the United States. It primarily invests in a diversified portfolio of convertible securities and high yield corporate bonds rated Ba or lower by Moodys or BB or lower by Standard Poors. The fund employs both fundamental and quantitative analysis with a focus on such factors as financial soundness, ability to make interest and dividend payments, earnings and cash-flow forecast, and quality of management to create its portfolio. Calamos Convertible Opportunities and Income Fund was formed on April 17, 2002 and is domiciled in the United States. Please read more on our technical analysis page.
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Other Information on Investing in Calamos Fund
Calamos Convertible financial ratios help investors to determine whether Calamos Fund 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 Calamos with respect to the benefits of owning Calamos Convertible security.
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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.