Grape King Bio Corporate Bonds and Leverage Analysis
| 1707 Stock | TWD 156.50 0.50 0.32% |
Grape King Bio has over 87.38 Million in debt which may indicate that it relies heavily on debt financing. . Grape King's financial risk is the risk to Grape King stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
Grape King'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. Grape King'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 Grape Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Grape King's stakeholders.
For most companies, including Grape King, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Grape King Bio, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Grape King's 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 Grape King's capital structure, the first step in the capital decision process is for the management of Grape King 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 Grape King Bio to issue bonds at a reasonable cost.
Grape King Bio Debt to Cash Allocation
Many companies such as Grape King, 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.
Grape King Bio has accumulated 87.38 M in total debt with debt to equity ratio (D/E) of 19.8, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. Grape King Bio has a current ratio of 0.88, 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 Grape King until it has trouble settling it off, either with new capital or with free cash flow. So, Grape King'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 Grape King Bio sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Grape to invest in growth at high rates of return. When we think about Grape King's use of debt, we should always consider it together with cash and equity.Grape King 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 Grape King's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Grape King, which in turn will lower the firm's financial flexibility.Grape King Corporate Bonds Issued
Understaning Grape King Use of Financial Leverage
Understanding the structure of Grape King's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Grape King's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Grape King Bio Ltd primarily produces and sells pharmaceutical preparations, patent medicines, liquid tonics, drinks, and healthy foods in Taiwan. The company was founded in 1969 and is headquartered in Taoyuan, Taiwan. GRAPE KING operates under Drug Manufacturers - Specialty Generic classification in Taiwan and is traded on Taiwan Stock Exchange. Please read more on our technical analysis page.
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When running Grape King's price analysis, check to measure Grape King'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 Grape King is operating at the current time. Most of Grape King's value examination focuses on studying past and present price action to predict the probability of Grape King's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Grape King's price. Additionally, you may evaluate how the addition of Grape King to your portfolios can decrease your overall portfolio volatility.
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.