Northern Graphite Current Debt
Northern Graphite holds a debt-to-equity ratio of 0.34. . Northern Graphite's financial risk is the risk to Northern Graphite stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Northern Graphite'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. Northern Graphite's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the OTC Stock is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Northern OTC Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Northern Graphite's stakeholders.
For most companies, including Northern Graphite, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Northern Graphite, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Northern Graphite's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Northern Graphite's debt-to-equity ratio measures a OTC Stock's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Northern Graphite is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Northern Graphite to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Northern Graphite is said to be less leveraged. If creditors hold a majority of Northern Graphite's assets, the OTC Stock is said to be highly leveraged.
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Northern Graphite Debt to Cash Allocation
Many companies such as Northern Graphite, 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.
Northern Graphite has accumulated 15.15 M in total debt with debt to equity ratio (D/E) of 0.34, which is about average as compared to similar companies. Northern Graphite has a current ratio of 4.27, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Northern Graphite until it has trouble settling it off, either with new capital or with free cash flow. So, Northern Graphite'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 Northern Graphite sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Northern to invest in growth at high rates of return. When we think about Northern Graphite's use of debt, we should always consider it together with cash and equity.Northern Graphite 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 Northern Graphite's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Northern Graphite, which in turn will lower the firm's financial flexibility.Understaning Northern Graphite Use of Financial Leverage
Northern Graphite's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Northern Graphite's total debt position, including all outstanding debt obligations, and compares it with Northern Graphite's equity. Financial leverage can amplify the potential profits to Northern Graphite's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Northern Graphite is unable to cover its debt costs.
Northern Graphite Corporation explores for and develops graphite properties in Canada. Northern Graphite Corporation was incorporated in 2002 and is headquartered in Ottawa, Canada. Northern Graphite is traded on OTC Exchange in the United States. Please read more on our technical analysis page.
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Check out Correlation Analysis 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 various price indices. Note that the Northern Graphite information on this page should be used as a complementary analysis to other Northern Graphite's 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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When running Northern Graphite's price analysis, check to measure Northern Graphite'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 Northern Graphite is operating at the current time. Most of Northern Graphite's value examination focuses on studying past and present price action to predict the probability of Northern Graphite's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Northern Graphite's price. Additionally, you may evaluate how the addition of Northern Graphite to your portfolios can decrease your overall portfolio volatility.
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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.