Kongzhong Corp Current Debt
Kongzhong Corp holds a debt-to-equity ratio of 0.21. With a high degree of financial leverage come high-interest payments, which usually reduce Kongzhong Corp's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Kongzhong Corp'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. Kongzhong Corp'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 Kongzhong Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Kongzhong Corp's stakeholders.
For most companies, including Kongzhong Corp, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Kongzhong Corp 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 Kongzhong Corp'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 Kongzhong Corp 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 Kongzhong Corp to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Kongzhong Corp is said to be less leveraged. If creditors hold a majority of Kongzhong Corp's assets, the Company is said to be highly leveraged.
Kongzhong |
Kongzhong Corp Financial Leverage Rating
Kongzhong Corp bond ratings play a critical role in determining how much Kongzhong Corp 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 Kongzhong Corp's borrowing costs.Kongzhong Corp Debt to Cash Allocation
As Kongzhong Corp follows its natural business cycle, the capital allocation decisions will not magically go away. Kongzhong Corp'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 49.96 M of total liabilities with total debt to equity ratio (D/E) of 0.21, which may suggest the company is not taking enough advantage from financial leverage. Kongzhong Corp has a current ratio of 2.76, indicating that it is in good position to pay out its debt commitments in time. Debt can assist Kongzhong Corp until it has trouble settling it off, either with new capital or with free cash flow. So, Kongzhong Corp'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 Kongzhong Corp sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Kongzhong to invest in growth at high rates of return. When we think about Kongzhong Corp's use of debt, we should always consider it together with cash and equity.Kongzhong Corp 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 Kongzhong Corp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Kongzhong Corp, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Kongzhong Corp debt ratio should be compared their industry average or other competing firms.Also Currently Popular
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Check out Correlation 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 nation. Note that the Kongzhong Corp information on this page should be used as a complementary analysis to other Kongzhong Corp'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 Stocks Directory module to find actively traded stocks across global markets.
Other Consideration for investing in Kongzhong Stock
If you are still planning to invest in Kongzhong Corp 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 Kongzhong Corp'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.