Bank Central Current Debt
BBCA Stock | IDR 9,400 125.00 1.35% |
Bank Central's financial risk is the risk to Bank Central stockholders that is caused by an increase in debt.
Given that Bank Central'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 Bank Central 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 Bank Central to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Bank Central is said to be less leveraged. If creditors hold a majority of Bank Central's assets, the Company is said to be highly leveraged.
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Bank Central Financial Leverage Rating
Bank Central Asia bond ratings play a critical role in determining how much Bank Central 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 Bank Central's borrowing costs.Bank Central Asia Debt to Cash Allocation
As Bank Central Asia follows its natural business cycle, the capital allocation decisions will not magically go away. Bank Central'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.
Bank Central Asia has accumulated 709.91 B in total debt. Debt can assist Bank Central until it has trouble settling it off, either with new capital or with free cash flow. So, Bank Central'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 Bank Central Asia sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Bank to invest in growth at high rates of return. When we think about Bank Central's use of debt, we should always consider it together with cash and equity.Bank Central 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 Bank Central's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Bank Central, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Bank Central debt ratio should be compared their industry average or other competing firms.Understaning Bank Central Use of Financial Leverage
Bank Central financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Bank Central'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 Bank Central assets, the company is considered highly leveraged. Understanding the composition and structure of overall Bank Central 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 Bank Central's 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 Bank Central's 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).
PT Bank Central Asia Tbk, together with its subsidiaries, provides banking products and services to individual, corporate, and small and medium enterprise customers in Indonesia and internationally. PT Bank Central Asia Tbk is a subsidiary of PT Dwimuria Investama Andalan. Bank Central operates under BanksRegional classification in Indonesia and is traded on Jakarta Stock Exchange. It employs 25571 people. Please read more on our technical analysis page.
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Other Information on Investing in Bank Stock
Bank Central financial ratios help investors to determine whether Bank Stock is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Bank with respect to the benefits of owning Bank Central security.
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.