Entree Resources Corporate Bonds and Leverage Analysis
| ERLFFDelisted Stock | USD 0.97 0.03 3.19% |
Entree Resources holds a debt-to-equity ratio of -1.1597. . Entree Resources' financial risk is the risk to Entree Resources stockholders that is caused by an increase in debt.
Entree |
Given the importance of Entree Resources' capital structure, the first step in the capital decision process is for the management of Entree Resources 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 Entree Resources to issue bonds at a reasonable cost.
Entree Resources Debt to Cash Allocation
Many companies such as Entree Resources, eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
Entree Resources has accumulated 10.26 M in total debt. Entree Resources has a current ratio of 32.73, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Entree Resources until it has trouble settling it off, either with new capital or with free cash flow. So, Entree Resources' 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 Entree Resources sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Entree to invest in growth at high rates of return. When we think about Entree Resources' use of debt, we should always consider it together with cash and equity.Entree Resources 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 Entree Resources' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Entree Resources, which in turn will lower the firm's financial flexibility.Entree Resources Corporate Bonds Issued
Most Entree bonds can be classified according to their maturity, which is the date when Entree Resources 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 Entree Resources Use of Financial Leverage
Entree Resources' financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Entree Resources' total debt position, including all outstanding debt obligations, and compares it with Entree Resources' equity. Financial leverage can amplify the potential profits to Entree Resources' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Entree Resources is unable to cover its debt costs.
Entre Resources Ltd., an exploration stage company, engages in the development and exploration of mineral property interests located in Mongolia, Peru, Australia, and Canada. Entre Resources Ltd. was incorporated in 1995 and is headquartered in Vancouver, Canada. Entree Resources operates under Other Industrial Metals Mining classification in the United States and is traded on OTC Exchange. It employs 4 people. Please read more on our technical analysis page.
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Check out Investing Opportunities to better understand how to build diversified portfolios. Also, note that the market value of any otc stock could be closely tied with the direction of predictive economic indicators such as signals in census. Note that the Entree Resources information on this page should be used as a complementary analysis to other Entree Resources' statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
Other Consideration for investing in Entree OTC Stock
If you are still planning to invest in Entree Resources 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 Entree Resources' 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.