Capstone Green Current Financial Leverage

CGRN
 Stock
  

USD 1.66  0.01  0.60%   

Capstone Green's financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Capstone Green's financial risk is the risk to Capstone Green 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).
Continue to the analysis of Capstone Green Fundamentals Over Time.
  
Capstone Green Total Debt is quite stable at the moment as compared to the past year. The company's current value of Total Debt is estimated at 61.97 Million. Debt Current is expected to rise to about 692.8 K this year, although the value of Issuance Repayment of Debt Securities will most likely fall to (703 K).
Given the importance of Capstone Green's capital structure, the first step in the capital decision process is for the management of Capstone Green 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 Capstone Green Energy to issue bonds at a reasonable cost.

Capstone Green Financial Leverage Rating

Capstone Green Energy bond ratings play a critical role in determining how much Capstone Green 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 Capstone Green's borrowing costs.
Piotroski F Score
2  Frail
Beneish M Score

Capstone Green Energy Debt to Cash Allocation

As Capstone Green Energy follows its natural business cycle, the capital allocation decisions will not magically go away. Capstone Green'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 currently holds 56.76 M in liabilities. Capstone Green Energy has a current ratio of 1.76, which is within standard range for the sector. Debt can assist Capstone Green until it has trouble settling it off, either with new capital or with free cash flow. So, Capstone Green'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 Capstone Green Energy sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Capstone to invest in growth at high rates of return. When we think about Capstone Green's use of debt, we should always consider it together with cash and equity.

Capstone Green Inventories Over Time

Capstone Green Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Capstone Green 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.

Capstone Green Debt Ratio

    
  61.44   
It seems about 38% of Capstone Green's assets are financed be 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 Capstone Green's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Capstone Green, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a Capstone Green debt ratio should be compared their industry average or other competing firms.
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Capstone Green Energy Historical Liabilities

While analyzing the current debt level is an essential aspect of forecasting the current year budgeting needs of Capstone Green, understanding its historical liability is critical in projecting Capstone Green's future earnings, especially during periods of low and high inflation and deflation. Many analysts look at the trend in assets and liabilities and evaluate how Capstone Green uses its financing power over time.
In order to fund their growth, businesses such as Capstone Green widely use Financial Leverage. For most companies, financial capital is raised by issuing debt securities and by selling common stock. The debt and equity that make up Capstone Green's capital structure have many risks and return implications. Leverage is an investment strategy of using borrowed money to increase the potential return of an investment. Please note, 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.

Understaning Capstone Green Use of Financial Leverage

Capstone Green financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Capstone Green'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 Capstone Green assets, the company is considered highly leveraged. Understanding the composition and structure of overall Capstone Green 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.
Last ReportedProjected for 2022
Total Debt57.4 M62 M
Debt Current675 K692.8 K
Debt Non Current56.8 M61.2 M
Issuance Repayment of Debt Securities-685 K-703 K
Long Term Debt to Equity 10.48  11.31 
Debt to Equity Ratio 10.61  11.45 
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Pair Trading with Capstone Green

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 Capstone Green 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 Capstone Green will appreciate offsetting losses from the drop in the long position's value.
The ability to find closely correlated positions to Capstone Green could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Capstone Green 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 Capstone Green - 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 Capstone Green Energy to buy it.
The correlation of Capstone Green is a statistical measure of how it moves in relation to other equities. 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 Capstone Green moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Capstone Green Energy 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 Capstone Green 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.
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Continue to the analysis of Capstone Green Fundamentals Over Time. You can also try Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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Is Capstone Green's industry 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 Capstone Green. If investors know Capstone 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 Capstone Green listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Market Capitalization
30.6 M
Quarterly Revenue Growth YOY
0.21
Return On Assets
(0.07) 
Return On Equity
(1.66) 
The market value of Capstone Green Energy is measured differently than its book value, which is the value of Capstone that is recorded on the company's balance sheet. Investors also form their own opinion of Capstone Green's value that differs from its market value or its book value, called intrinsic value, which is Capstone Green'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 Capstone Green's market value can be influenced by many factors that don't directly affect Capstone Green'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 Capstone Green's value and its price as these two are different measures arrived at by different means. Investors typically determine Capstone Green value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Capstone Green'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.