Tree Island Current Financial Leverage
| TWIRF Stock | USD 2.42 0.00 0.00% |
Tree Island Steel holds a debt-to-equity ratio of 0.392. Tree Island's financial risk is the risk to Tree Island 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
Tree Island'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. Tree Island'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 Tree Pink Sheet's retail investors understand whether an upcoming fall or rise in the market will negatively affect Tree Island's stakeholders.
For most companies, including Tree Island, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Tree Island Steel 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 Tree Island'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 Tree Island 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 Tree Island to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Tree Island is said to be less leveraged. If creditors hold a majority of Tree Island's assets, the Company is said to be highly leveraged.
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Tree Island Financial Leverage Rating
Tree Island Steel bond ratings play a critical role in determining how much Tree Island 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 Tree Island's borrowing costs.Tree Island Steel Debt to Cash Allocation
As Tree Island Steel follows its natural business cycle, the capital allocation decisions will not magically go away. Tree Island'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 has accumulated 10.36 M in total debt with debt to equity ratio (D/E) of 0.39, which is about average as compared to similar companies. Tree Island Steel has a current ratio of 4.41, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Tree Island until it has trouble settling it off, either with new capital or with free cash flow. So, Tree Island'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 Tree Island Steel sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Tree to invest in growth at high rates of return. When we think about Tree Island's use of debt, we should always consider it together with cash and equity.Tree Island 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 Tree Island's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Tree Island, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Tree Island debt ratio should be compared their industry average or other competing firms.Understaning Tree Island Use of Financial Leverage
Tree Island financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Tree Island'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 Tree Island assets, the company is considered highly leveraged. Understanding the composition and structure of overall Tree Island 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 Tree Island'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 Tree Island'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).
Tree Island Steel Ltd. manufactures and sells steel wire and fabricated steel wire products for industrial, construction, agricultural, and specialty applications in Canada, the United States, and internationally. Tree Island Steel Ltd. was founded in 1964 and is headquartered in Richmond, Canada. Tree Island operates under Steel classification in the United States and is traded on OTC Exchange. It employs 480 people. Please read more on our technical analysis page.
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 Tree Island 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, Tree Island's short interest history, or implied volatility extrapolated from Tree Island options trading.
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Check out the analysis of Tree Island Fundamentals Over Time. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
Complementary Tools for Tree Pink Sheet analysis
When running Tree Island's price analysis, check to measure Tree Island'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 Tree Island is operating at the current time. Most of Tree Island's value examination focuses on studying past and present price action to predict the probability of Tree Island's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Tree Island's price. Additionally, you may evaluate how the addition of Tree Island 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.