Electronic Control Current Financial Leverage
| EKCS Stock | USD 0 0.00 0.00% |
Electronic Control has over 2.21 Million in debt which may indicate that it relies heavily on debt financing. Electronic Control's financial risk is the risk to Electronic Control 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
Electronic Control'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. Electronic Control'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 Electronic Pink Sheet's retail investors understand whether an upcoming fall or rise in the market will negatively affect Electronic Control's stakeholders.
For most companies, including Electronic Control, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Electronic Control Security 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 Electronic Control'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 Electronic Control 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 Electronic Control to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Electronic Control is said to be less leveraged. If creditors hold a majority of Electronic Control's assets, the Company is said to be highly leveraged.
Electronic |
Electronic Control Financial Leverage Rating
Electronic Control Security bond ratings play a critical role in determining how much Electronic Control 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 Electronic Control's borrowing costs.Electronic Control Debt to Cash Allocation
As Electronic Control Security follows its natural business cycle, the capital allocation decisions will not magically go away. Electronic Control'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 2.21 M in liabilities with Debt to Equity (D/E) ratio of 3.02, implying the company greatly relies on financing operations through barrowing. Electronic Control has a current ratio of 1.12, suggesting that it is not liquid enough and may have problems paying out its financial obligations when due. Debt can assist Electronic Control until it has trouble settling it off, either with new capital or with free cash flow. So, Electronic Control'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 Electronic Control sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Electronic to invest in growth at high rates of return. When we think about Electronic Control's use of debt, we should always consider it together with cash and equity.Electronic Control 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 Electronic Control's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Electronic Control, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a an Electronic Control debt ratio should be compared their industry average or other competing firms.Understaning Electronic Control Use of Financial Leverage
Electronic Control financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Electronic Control'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 Electronic Control assets, the company is considered highly leveraged. Understanding the composition and structure of overall Electronic Control 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 Electronic Control'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 Electronic Control'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).
Electronic Control Security Inc. designs, develops, manufactures, and markets technology-based integrated security solutions in the United States and the Middle East. The company was founded in 1976 and is headquartered in Clifton, New Jersey. Electronic Control operates under Security Protection Services classification in the United States and is traded on OTC Exchange. Please read more on our technical analysis page.
Pair Trading with Electronic Control
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 Electronic Control 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 Electronic Control will appreciate offsetting losses from the drop in the long position's value.Moving together with Electronic Pink Sheet
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Moving against Electronic Pink Sheet
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The ability to find closely correlated positions to Electronic Control could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Electronic Control 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 Electronic Control - 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 Electronic Control Security to buy it.
The correlation of Electronic Control 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 Electronic Control moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Electronic Control 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 Electronic Control 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.Check out the analysis of Electronic Control Fundamentals Over Time. Note that the Electronic Control information on this page should be used as a complementary analysis to other Electronic Control'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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Complementary Tools for Electronic Pink Sheet analysis
When running Electronic Control's price analysis, check to measure Electronic Control's 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 Electronic Control is operating at the current time. Most of Electronic Control's value examination focuses on studying past and present price action to predict the probability of Electronic Control's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Electronic Control's price. Additionally, you may evaluate how the addition of Electronic Control to your portfolios can decrease your overall portfolio volatility.
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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.