Just Energy Current Financial Leverage
Just Energy Group holds a debt-to-equity ratio of -5.3781. Just Energy's financial risk is the risk to Just Energy 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).
Given that Just Energy'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 Just Energy 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 Just Energy to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Just Energy is said to be less leveraged. If creditors hold a majority of Just Energy's assets, the Company is said to be highly leveraged.
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Just Energy Financial Leverage Rating
Just Energy Group bond ratings play a critical role in determining how much Just Energy 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 Just Energy's borrowing costs.Just Energy Group Debt to Cash Allocation
As Just Energy Group follows its natural business cycle, the capital allocation decisions will not magically go away. Just Energy's 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 reports 497.14 M of total liabilities. Just Energy Group has a current ratio of 0.98, implying that it has not enough working capital to pay out debt commitments in time. Debt can assist Just Energy until it has trouble settling it off, either with new capital or with free cash flow. So, Just Energy'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 Just Energy Group sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Just to invest in growth at high rates of return. When we think about Just Energy's use of debt, we should always consider it together with cash and equity.Just Energy 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 Just Energy's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Just Energy, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Just Energy debt ratio should be compared their industry average or other competing firms.Some investors attempt to determine whether the market's mood is bullish or bearish by monitoring changes in market sentiment. Unlike more traditional methods such as technical analysis, investor sentiment usually refers to the aggregate attitude towards Just Energy in the overall investment community. So, suppose investors can accurately measure the market's sentiment. In that case, they can use it for their benefit. For example, some tools to gauge market sentiment could be utilized using contrarian indexes, Just Energy's short interest history, or implied volatility extrapolated from Just Energy options trading.
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Try AI Portfolio ArchitectCheck out Risk vs Return Analysis to better understand how to build diversified portfolios. Also, note that the market value of any company could be tightly coupled with the direction of predictive economic indicators such as signals in income. Note that the Just Energy Group information on this page should be used as a complementary analysis to other Just Energy's statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
Other Consideration for investing in Just Stock
If you are still planning to invest in Just Energy Group check if it may still be traded through OTC markets such as Pink Sheets or OTC Bulletin Board. You may also purchase it directly from the company, but this is not always possible and may require contacting the company directly. Please note that delisted stocks are often considered to be more risky investments, as they are no longer subject to the same regulatory and reporting requirements as listed stocks. Therefore, it is essential to carefully research the Just Energy's history and understand the potential risks before investing.
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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.