If you are a value investor, you want to see a company have very minimal debt or no debt at all. In combination with that, you want the company to have lots of cash on hand so they can continue operating through the slow times, providing you with value in your investments if the company can pull through and eventually grow.
How important is Companhia Energética's Liquidity
Companhia Energética
financial leverage refers to using borrowed capital as a funding source to finance Companhia Energtica de ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Companhia Energética financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Companhia Energética's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Companhia Energética's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between Companhia Energética's total debt and its cash.
You can break debt out into a few parts to understand it better. With bonds, you want to see how much they’ve financed, the rates, and when they are due to pay back on those bonds. It could be a very small amount or many, either way, you want to see how that fits into the debt picture. Secondly, you could look at notes with lenders to see when those expire or how much the monthly payments are. This would include lines of credit, as they are similar but have their slight differences. Lastly, any short term debt should be noted because that should be going away within a year. What you do not want to see if a chain of long term debt being used to pay short term debt, which could be a vicious cycle that is indicating a cash flow issue.
Debt does not play into technical analysis much, but it could still be a factor non the less. Be sure to fully understand the intention of each debt because if it is being used to expand or grow the business, look at it as an investment because that will likely return more to you. Besides that, use common sense and if the debt pattern seems fishy, it probably is. Debt can be a powerful leveraging tool in business, but if used incorrectly, could bring a business down. There are many ratios to use as well if you are looking to compare across an industry so be sure to pay close attention to those. If you still have questions, reach out to an investing community and ask for peer input, as that can help to guide your thought process.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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