Dime Community Bancshares Corporate Bonds and Leverage Analysis
| DCOMP Preferred Stock | USD 19.94 0.14 0.71% |
Dime Community's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Dime Community's financial risk is the risk to Dime Community stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Dime |
Given the importance of Dime Community's capital structure, the first step in the capital decision process is for the management of Dime Community 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 Dime Community Bancshares to issue bonds at a reasonable cost.
Dime Community Bancshares Debt to Cash Allocation
Dime Community Bancshares has accumulated 1.33 B in total debt. Debt can assist Dime Community until it has trouble settling it off, either with new capital or with free cash flow. So, Dime Community'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 Dime Community Bancshares sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Dime to invest in growth at high rates of return. When we think about Dime Community's use of debt, we should always consider it together with cash and equity.Dime Community 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 Dime Community's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Dime Community, which in turn will lower the firm's financial flexibility.Dime Community Corporate Bonds Issued
Understaning Dime Community Use of Financial Leverage
Dime Community's financial leverage ratio measures its total debt position, including all of its outstanding liabilities, and compares it to Dime Community's current equity. If creditors own a majority of Dime Community's assets, the company is considered highly leveraged. Understanding the composition and structure of Dime Community's outstanding bonds gives an idea of how risky it is and if it is worth investing in.
Dime Community Bancshares, Inc. operates as the holding company for Dime Community Bank that provides various commercial banking and financial services. Dime Community Bancshares, Inc. was founded in 1910 and is headquartered in Hauppauge, New York. Dime Community operates under BanksRegional classification in the United States and is traded on NASDAQ Exchange. It employs 802 people. Please read more on our technical analysis page.
Pair Trading with Dime Community
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 Dime Community 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 Dime Community will appreciate offsetting losses from the drop in the long position's value.Moving together with Dime Preferred Stock
The ability to find closely correlated positions to Dime Community could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Dime Community 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 Dime Community - 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 Dime Community Bancshares to buy it.
The correlation of Dime Community 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 Dime Community moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Dime Community Bancshares 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 Dime Community 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.Additional Tools for Dime Preferred Stock Analysis
When running Dime Community's price analysis, check to measure Dime Community's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Dime Community is operating at the current time. Most of Dime Community's value examination focuses on studying past and present price action to predict the probability of Dime Community's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Dime Community's price. Additionally, you may evaluate how the addition of Dime Community to your portfolios can decrease your overall portfolio volatility.
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.