Canadian National Railway Corporate Bonds and Leverage Analysis
| CNI Stock | USD 111.26 1.62 1.48% |
Canadian National Railway holds a debt-to-equity ratio of 0.715. As of now, Canadian National's Short and Long Term Debt is increasing as compared to previous years. The Canadian National's current Interest Debt Per Share is estimated to increase to 30.63, while Long Term Debt is projected to decrease to under 8.2 B. With a high degree of financial leverage come high-interest payments, which usually reduce Canadian National's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Canadian National'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. Canadian National'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 Canadian Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Canadian National's stakeholders.
For most companies, including Canadian National, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Canadian National Railway, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Canadian National's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Price Book 5.0535 | Book Value 30.945 | Operating Margin 0.3964 | Profit Margin 0.3166 | Return On Assets 0.0818 |
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Given the importance of Canadian National's capital structure, the first step in the capital decision process is for the management of Canadian National 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 Canadian National Railway to issue bonds at a reasonable cost.
Canadian National Railway Debt to Cash Allocation
As Canadian National Railway follows its natural business cycle, the capital allocation decisions will not magically go away. Canadian National'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.
Canadian National Railway has 18.89 B in debt with debt to equity (D/E) ratio of 0.72, which is OK given its current industry classification. Canadian National Railway has a current ratio of 0.99, 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 Canadian to invest in growth at high rates of return. Canadian National Total Assets Over Time
Canadian National Assets Financed by Debt
The debt-to-assets ratio shows the degree to which Canadian National uses debt to finance its assets. It includes both long-term and short-term borrowings maturing within one year. It also includes both tangible and intangible assets, such as goodwill.Canadian National Debt Ratio | 22.0 |
Canadian National Corporate Bonds Issued
Most Canadian bonds can be classified according to their maturity, which is the date when Canadian National Railway 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.
Canadian Short Long Term Debt Total
Short Long Term Debt Total |
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Understaning Canadian National Use of Financial Leverage
Understanding the composition and structure of Canadian National'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 Canadian National'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).
| Last Reported | Projected for Next Year | ||
| Short and Long Term Debt Total | 18.9 B | 19.8 B | |
| Net Debt | 18.4 B | 19.3 B | |
| Short Term Debt | 2.5 B | 2.6 B | |
| Long Term Debt | 16.1 B | 8.2 B | |
| Short and Long Term Debt | 2.3 B | 2.5 B | |
| Long Term Debt Total | 16.5 B | 12.2 B | |
| Net Debt To EBITDA | 2.04 | 1.90 | |
| Debt To Equity | 0.92 | 0.53 | |
| Interest Debt Per Share | 29.17 | 30.63 | |
| Debt To Assets | 0.35 | 0.22 | |
| Long Term Debt To Capitalization | 0.44 | 0.30 | |
| Total Debt To Capitalization | 0.48 | 0.32 | |
| Debt Equity Ratio | 0.92 | 0.53 | |
| Debt Ratio | 0.35 | 0.22 | |
| Cash Flow To Debt Ratio | 0.38 | 0.33 |
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When determining whether Canadian National Railway offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Canadian National's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Canadian National Railway Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Canadian National Railway Stock:Check out the analysis of Canadian National Fundamentals Over Time. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
Is Ground Transportation space expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Canadian National. If investors know Canadian will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Canadian National listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Quarterly Earnings Growth 0.018 | Dividend Share 3.325 | Earnings Share 6.01 | Revenue Per Share 26.896 | Quarterly Revenue Growth 0.031 |
The market value of Canadian National Railway is measured differently than its book value, which is the value of Canadian that is recorded on the company's balance sheet. Investors also form their own opinion of Canadian National's value that differs from its market value or its book value, called intrinsic value, which is Canadian National's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Canadian National's market value can be influenced by many factors that don't directly affect Canadian National's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Canadian National's value and its price as these two are different measures arrived at by different means. Investors typically determine if Canadian National is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Canadian National's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.
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.