Audio Pixels Current Financial Leverage

ADPXY Stock  USD 3.95  0.00  0.00%   
Audio Pixels Holdings holds a debt-to-equity ratio of 2.863. Audio Pixels' financial risk is the risk to Audio Pixels 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).

Asset vs Debt

Equity vs Debt

Audio Pixels' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Audio Pixels' 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 Audio Pink Sheet's retail investors understand whether an upcoming fall or rise in the market will negatively affect Audio Pixels' stakeholders.
For most companies, including Audio Pixels, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Audio Pixels Holdings the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Given that Audio Pixels' 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 Audio Pixels 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 Audio Pixels to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Audio Pixels is said to be less leveraged. If creditors hold a majority of Audio Pixels' assets, the Company is said to be highly leveraged.
  
Check out the analysis of Audio Pixels Fundamentals Over Time.

Audio Pixels Financial Leverage Rating

Audio Pixels Holdings bond ratings play a critical role in determining how much Audio Pixels have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Audio Pixels' borrowing costs.

Audio Pixels Holdings Debt to Cash Allocation

As Audio Pixels Holdings follows its natural business cycle, the capital allocation decisions will not magically go away. Audio Pixels' decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors. Many companies 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.
The company has accumulated 3.98 M in total debt with debt to equity ratio (D/E) of 2.86, implying the company greatly relies on financing operations through barrowing. Audio Pixels Holdings has a current ratio of 0.1, 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 Audio Pixels until it has trouble settling it off, either with new capital or with free cash flow. So, Audio Pixels' 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 Audio Pixels Holdings sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Audio to invest in growth at high rates of return. When we think about Audio Pixels' use of debt, we should always consider it together with cash and equity.

Audio Pixels 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 Audio Pixels' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Audio Pixels, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a an Audio Pixels debt ratio should be compared their industry average or other competing firms.

Understaning Audio Pixels Use of Financial Leverage

Audio Pixels financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Audio Pixels's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Audio Pixels assets, the company is considered highly leveraged. Understanding the composition and structure of overall Audio Pixels debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Audio Pixels' 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 Audio Pixels' 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).
Audio Pixels Holdings Limited, through its subsidiary, Audio Pixels Limited, engages in the development of digital speakers in Australia and Israel. The company was incorporated in 2000 and is based in Sydney, Australia. Audio Pixels operates under Consumer Electronics classification in the United States and is traded on OTC Exchange. It employs 15 people.
Please read more on our technical analysis page.

Pair Trading with Audio Pixels

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 Audio Pixels 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 Audio Pixels will appreciate offsetting losses from the drop in the long position's value.

Moving together with Audio Pink Sheet

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Moving against Audio Pink Sheet

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The ability to find closely correlated positions to Audio Pixels could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Audio Pixels 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 Audio Pixels - 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 Audio Pixels Holdings to buy it.
The correlation of Audio Pixels 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 Audio Pixels moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Audio Pixels Holdings 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 Audio Pixels 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.
Pair CorrelationCorrelation Matching
Check out the analysis of Audio Pixels Fundamentals Over Time.
You can also try the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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When running Audio Pixels' price analysis, check to measure Audio Pixels' 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 Audio Pixels is operating at the current time. Most of Audio Pixels' value examination focuses on studying past and present price action to predict the probability of Audio Pixels' future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Audio Pixels' price. Additionally, you may evaluate how the addition of Audio Pixels to your portfolios can decrease your overall portfolio volatility.
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Please note, there is a significant difference between Audio Pixels' value and its price as these two are different measures arrived at by different means. Investors typically determine if Audio Pixels is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Audio Pixels' 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.