Energy Income Debt
| ENI-UN Etf | CAD 1.63 0.04 2.40% |
Energy Income'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. Energy Income's financial risk is the risk to Energy Income 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).
Given that Energy Income's debt-to-equity ratio measures a ETF's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Energy Income 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 Energy Income to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Energy Income is said to be less leveraged. If creditors hold a majority of Energy Income's assets, the ETF is said to be highly leveraged.
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Energy Income Debt to Cash Allocation
The company has a current ratio of 47.97, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Energy Income until it has trouble settling it off, either with new capital or with free cash flow. So, Energy Income'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 Energy Income sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Energy to invest in growth at high rates of return. When we think about Energy Income's use of debt, we should always consider it together with cash and equity.Energy Income 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 Energy Income's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Energy Income, which in turn will lower the firm's financial flexibility.Energy Income Corporate Bonds Issued
Most Energy bonds can be classified according to their maturity, which is the date when Energy Income 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 Energy Income Use of Financial Leverage
Energy Income's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Energy Income's total debt position, including all outstanding debt obligations, and compares it with Energy Income's equity. Financial leverage can amplify the potential profits to Energy Income's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Energy Income is unable to cover its debt costs.
Energy Income Fund is a close ended equity mutual fund launched by Artemis Investment Management Limited. Energy Income Fund was formed on August 29, 2005 and is domiciled in Canada. ENERGY INCOME operates under Asset Management classification in Canada and is traded on Toronto Stock Exchange. Please read more on our technical analysis page.
Pair Trading with Energy Income
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 Energy Income 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 Energy Income will appreciate offsetting losses from the drop in the long position's value.Moving together with Energy Etf
Moving against Energy Etf
The ability to find closely correlated positions to Energy Income could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Energy Income 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 Energy Income - 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 Energy Income to buy it.
The correlation of Energy Income 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 Energy Income moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Energy Income 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 Energy Income 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.Other Information on Investing in Energy Etf
Energy Income financial ratios help investors to determine whether Energy Etf is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Energy with respect to the benefits of owning Energy Income security.
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.