Customers Bancorp Corporate Bonds and Leverage Analysis

CUBB Stock  USD 20.60  0.34  1.62%   
At present, Customers Bancorp's Short and Long Term Debt Total is projected to increase significantly based on the last few years of reporting. The current year's Debt To Equity is expected to grow to 1.22, whereas Net Debt is projected to grow to (2.2 B). With a high degree of financial leverage come high-interest payments, which usually reduce Customers Bancorp's Earnings Per Share (EPS).
 
Debt Ratio  
First Reported
2010-12-31
Previous Quarter
0.06963532
Current Value
0.088
Quarterly Volatility
0.0779471
 
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As of December 11, 2024, Liabilities And Stockholders Equity is expected to decline to about 12.3 B. In addition to that, Total Current Liabilities is expected to decline to about 182.6 M
  
Check out the analysis of Customers Bancorp Fundamentals Over Time.
For information on how to trade Customers Stock refer to our How to Trade Customers Stock guide.
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Given the importance of Customers Bancorp's capital structure, the first step in the capital decision process is for the management of Customers Bancorp 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 Customers Bancorp to issue bonds at a reasonable cost.

Customers Bancorp Total Assets Over Time

Customers Bancorp Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Customers Bancorp uses debt to finance its assets. It includes both long-term and short-term borrowings maturing within one year. It also includes both tangible and intangible assets, such as goodwill.

Customers Bancorp Debt Ratio

    
  8.8   
It appears most of the Customers Bancorp's assets are financed through equity. 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 Customers Bancorp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Customers Bancorp, which in turn will lower the firm's financial flexibility.

Customers Bancorp Corporate Bonds Issued

Most Customers bonds can be classified according to their maturity, which is the date when Customers Bancorp 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.

Customers Net Debt

Net Debt

(2.24 Billion)

At present, Customers Bancorp's Net Debt is projected to decrease significantly based on the last few years of reporting.

Understaning Customers Bancorp Use of Financial Leverage

Customers Bancorp's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures Customers Bancorp's total debt position, including all outstanding debt obligations, and compares it with Customers Bancorp's equity. Financial leverage can amplify the potential profits to Customers Bancorp's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if Customers Bancorp is unable to cover its debt costs.
Last ReportedProjected for Next Year
Net Debt-2.4 B-2.2 B
Long Term Debt351.2 M280.4 M
Long Term Debt Total351.2 M280.4 M
Short and Long Term Debt Total1.5 B1.8 B
Short Term Debt29.7 M28.2 M
Net Debt To EBITDA(6.55)(6.22)
Debt To Equity 0.91  1.22 
Interest Debt Per Share 68.85  40.30 
Debt To Assets 0.07  0.09 
Long Term Debt To Capitalization 0.48  0.33 
Total Debt To Capitalization 0.48  0.42 
Debt Equity Ratio 0.91  1.22 
Debt Ratio 0.07  0.09 
Cash Flow To Debt Ratio 0.08  0.08 
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When determining whether Customers Bancorp offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Customers Bancorp's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Customers Bancorp Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Customers Bancorp Stock:
Check out the analysis of Customers Bancorp Fundamentals Over Time.
For information on how to trade Customers Stock refer to our How to Trade Customers Stock guide.
You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
Is Regional Banks space expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Customers Bancorp. If investors know Customers will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Customers Bancorp listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
The market value of Customers Bancorp is measured differently than its book value, which is the value of Customers that is recorded on the company's balance sheet. Investors also form their own opinion of Customers Bancorp's value that differs from its market value or its book value, called intrinsic value, which is Customers Bancorp's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Customers Bancorp's market value can be influenced by many factors that don't directly affect Customers Bancorp's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Customers Bancorp's value and its price as these two are different measures arrived at by different means. Investors typically determine if Customers Bancorp is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Customers Bancorp's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

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.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.