Kenon Holdings Corporate Bonds and Leverage Analysis
| KEN Stock | 10,860 80.00 0.73% |
Kenon Holdings has over 1.17 Billion in debt which may indicate that it relies heavily on debt financing. With a high degree of financial leverage come high-interest payments, which usually reduce Kenon Holdings' Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Kenon Holdings' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Kenon Holdings' 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 Kenon Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Kenon Holdings' stakeholders.
For most companies, including Kenon Holdings, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Kenon Holdings, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Kenon Holdings' 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 Kenon Holdings' capital structure, the first step in the capital decision process is for the management of Kenon Holdings 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 Kenon Holdings to issue bonds at a reasonable cost.
Kenon Holdings Debt to Cash Allocation
Kenon Holdings has accumulated 1.17 B in total debt with debt to equity ratio (D/E) of 86.0, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Kenon Holdings has a current ratio of 2.97, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Kenon Holdings until it has trouble settling it off, either with new capital or with free cash flow. So, Kenon Holdings' 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 Kenon Holdings sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Kenon to invest in growth at high rates of return. When we think about Kenon Holdings' use of debt, we should always consider it together with cash and equity.Kenon Holdings 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 Kenon Holdings' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Kenon Holdings, which in turn will lower the firm's financial flexibility.Kenon Holdings Corporate Bonds Issued
Most Kenon bonds can be classified according to their maturity, which is the date when Kenon Holdings 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 Kenon Holdings Use of Financial Leverage
Kenon Holdings' financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Kenon Holdings' total debt position, including all outstanding debt obligations, and compares it with Kenon Holdings' equity. Financial leverage can amplify the potential profits to Kenon Holdings' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Kenon Holdings is unable to cover its debt costs.
Kenon Holdings Ltd., through its subsidiaries, owns, develops, and operates power generation facilities in Israel. Kenon Holdings Ltd. is a subsidiary of Ansonia Holdings Singapore B.V. KENON HLDGS operates under Utilities - Regulated Electric classification in Israel and is traded on Tel Aviv Stock Exchange. It employs 112 people. Please read more on our technical analysis page.
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When determining whether Kenon Holdings offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Kenon Holdings' 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 Kenon Holdings Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Kenon Holdings Stock:Check out the analysis of Kenon Holdings Fundamentals Over Time. For information on how to trade Kenon Stock refer to our How to Trade Kenon Stock guide.You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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.