Canadian Solar Debt
| L5A Stock | EUR 12.13 0.32 2.57% |
Canadian Solar has over 748.31 Million in debt which may indicate that it relies heavily on debt financing. . Canadian Solar's financial risk is the risk to Canadian Solar stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Canadian Solar'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. Canadian Solar's 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 Canadian Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Canadian Solar's stakeholders.
For most companies, including Canadian Solar, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Canadian Solar, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Canadian Solar'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 Canadian Solar's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Canadian Solar 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 Canadian Solar to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Canadian Solar is said to be less leveraged. If creditors hold a majority of Canadian Solar's assets, the Company is said to be highly leveraged.
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Canadian Solar Debt to Cash Allocation
Many companies such as Canadian Solar, 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.
Canadian Solar has accumulated 748.31 M in total debt with debt to equity ratio (D/E) of 144.2, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Canadian Solar has a current ratio of 0.99, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Debt can assist Canadian Solar until it has trouble settling it off, either with new capital or with free cash flow. So, Canadian Solar'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 Canadian Solar sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Canadian to invest in growth at high rates of return. When we think about Canadian Solar's use of debt, we should always consider it together with cash and equity.Canadian Solar 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 Canadian Solar's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Canadian Solar, which in turn will lower the firm's financial flexibility.Canadian Solar Corporate Bonds Issued
Most Canadian bonds can be classified according to their maturity, which is the date when Canadian Solar 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 Canadian Solar Use of Financial Leverage
Canadian Solar's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Canadian Solar's total debt position, including all outstanding debt obligations, and compares it with Canadian Solar's equity. Financial leverage can amplify the potential profits to Canadian Solar's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Canadian Solar is unable to cover its debt costs.
Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar ingots, wafers, cells, modules, and other solar power products primarily under the Canadian Solar brand name. The company was founded in 2001 and is headquartered in Guelph, Canada. CANADIAN SOLAR operates under Solar classification in Germany and is traded on Frankfurt Stock Exchange. It employs 12442 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in Canadian Stock
When determining whether Canadian Solar is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Canadian Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Canadian Solar Stock. Highlighted below are key reports to facilitate an investment decision about Canadian Solar Stock:Check out the analysis of Canadian Solar Fundamentals Over Time. For more detail on how to invest in Canadian Stock please use our How to Invest in Canadian Solar guide.You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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.