Continue to hold Canadian (USA Stocks:CM) based on its current debt obligations?

Money makes the world go round, and Canadian Imperial Bank's stock is no exception. With a market valuation of $48.99 billion, the bank is a significant player in the financial services sector. The bank's net income from continuing operations stands at a robust $5 billion, demonstrating its strong profitability. Despite a net debt of $131.3 billion, the bank's substantial cash reserves of $63.2 billion provide a cushion against short-term liabilities, which total $77.7 billion. The bank's free cash flow, a key indicator of financial health, is impressive at $11.1 billion. The bank's net tangible assets stand at $42.2 billion, further strengthening its financial position. The analyst overall consensus for the stock is a 'Buy', indicating positive market sentiment. With a dividend per share of $3.54, the stock offers an attractive yield for income-focused investors. Given these factors, we anticipate strong returns for Canadian Imperial Bank's stock in August. Canadian Imperial Bank is set to announce its earnings tomorrow, with the next fiscal year-end projected for December 5, 2024. The bank's Operating Cash Flow Per Share remains stable compared to the previous year. As of July 10, 2024, the Stock Based Compensation To Revenue is anticipated to grow, while the Dividend Yield is expected to decrease by 0.04. Amid growing enthusiasm in the banking sector, a closer look at Canadian Imperial Bank's debt utilization is warranted. The focus will be on the bank's ability to maintain its debt level in August.
Published over a week ago
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Reviewed by Gabriel Shpitalnik

From a leverage perspective, investing in Canadian Imperial Bank stock presents a potentially profitable opportunity. With a robust End Period Cash Flow of 20.8B and a substantial Total Stockholder Equity of 53B, the bank demonstrates strong financial health, suggesting that it could yield favorable returns in August. However, investors should consider the bank's negative Sortino Ratio and Market Risk Adjusted Performance, indicating potential downside risk.

Primary Takeaways

Canadian Imperial Bank has reported total liabilities of $194.5B, with a debt to equity ratio (D/E) of 20.35. This suggests that the bank may struggle to generate sufficient cash to meet its debt obligations. However, debt can still be a valuable tool for the bank to invest in high-return growth. The bank's net profit margin (PM) stands at 0.29%, indicating that even a minor decrease in sales could wipe out profits, potentially leading to a net loss. This is significantly below average. Additionally, the bank's net operating margin (NOM) is 0.38%, meaning it earns a net operating income of $0.38 for every $100 in sales.
Canadian Imperial financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures the total debt position of Canadian Imperial, including all of Canadian Imperial's 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 Canadian Imperial assets, the company is considered highly leveraged. Understanding the composition and structure of overall Canadian Imperial debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business is and if it is worth investing in it. Please read more on our technical analysis page.

Understanding Canadian Total Liabilities

Canadian Imperial Bank liabilities are broken down into two parts on the balance sheet. These are short-term (or current) obligations and long-term debt. Canadian Imperial Bank has to fulfill its short-term liabilities in this reporting year and should be no more than 12 months old. Long-term debt, on the other hand, is anything beyond the 12-month payment timeframe. Common short-term liabilities found on Canadian Imperial balance sheet include debt obligations and money owed to different Canadian Imperial vendors, workers, and loan providers. Below is the chart of Canadian short long-term liabilities accounts currently reported on its balance sheet.
You can use Canadian Imperial Bank financial leverage analysis tool to get a better grip on understanding its financial position

How important is Canadian Imperial's Liquidity

Canadian Imperial financial leverage refers to using borrowed capital as a funding source to finance Canadian Imperial Bank ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Canadian Imperial financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Canadian Imperial'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 Canadian Imperial'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). Please check the breakdown between Canadian Imperial's total debt and its cash.

Breaking it down

The recent indifference towards the small price fluctuations of Canadian Imperial Bank could raise concerns from investors as the firm is trading at a share price of 48.99 on 2,228,940 in volume. The company directors and management did not add any value to Canadian Imperial investors in June. However, most investors can still diversify their portfolios with Canadian Imperial Bank to hedge their inherited risk against high-volatility market scenarios. The stock standard deviation of daily returns for 90 days investing horizon is currently 1.37. The below-average Stock volatility is a good sign for longer-term investment options and for buy-and-hold investors.

Asset Breakdown

384.6 B
Non Current Assets Total
251.9 B
Earning Assets
Total Current Assets
794.3 B
Other Assets
180.6 B
Other Current Assets
Total Assets1.18 Trillion
Non Currrent Assets Other(687.18 Million)
Other Assets794.34 Billion
Non Current Assets Total384.61 Billion
Total Current Assets114.04 Billion
Other Current Assets180.61 Billion
Net Tangible Assets50.94 Billion
Intangible Assets3.31 Billion
Deferred Long Term Asset Charges0.0
Earning Assets251.88 Billion
As the saying goes, "Don't put all your eggs in one basket," and this rings true when considering the Canadian Imperial Bank stock. Despite a modest operating margin of 0.38%, the bank has managed to maintain a healthy cash flow, ending the period with a substantial $20.8B. However, the bank's risk-adjusted performance stands at a mere 0.006, indicating a relatively high level of risk compared to potential returns. The forward dividend yield of 0.0542, coupled with a market capitalization of $45.78B, suggests that the bank is still a considerable player in the market. However, investors should tread carefully, considering the downside deviation of 1.11 and a Treynor Ratio of -0.02, which signals potential underperformance in the future..

Canadian showing symptom of lower volatility

Despite the recent kurtosis surge to 13.46 for Canadian Imperial Bank, it's crucial to understand that this statistical measure often signifies lower volatility. This implies that the bank's stock price has seen fewer extreme fluctuations, indicating a more stable and predictable pattern. This could be seen as a sign of reduced risk, making Canadian Imperial Bank an appealing choice for investors seeking portfolio stability. The bank's stock exhibits relatively low volatility, with a skewness of 2.38 and kurtosis of 13.46. Understanding market volatility trends can help investors time the market. Proper use of volatility indicators allows traders to gauge the risk of Canadian Imperial's stock against market volatility during both bullish and bearish trends. The increased volatility associated with bear markets can directly affect the bank's stock price, causing investor stress as share values drop, often prompting portfolio rebalancing.

Our Conclusion on Canadian Imperial

When is the right time to buy or sell Canadian Imperial Bank? Buying stocks such as Canadian Imperial isn't very hard. However, what challenging for most investors is doing it at the right time. Proper market timing is something most people cannot do without sophisticated tools, which help to isolate the right opportunities, deliver winning trades and diversify portfolios on a daily basis.
With a somewhat neutral outlook on your 90 days horizon, it may be better to hold off any trading activity and neither buy new shares of Canadian nor exit your existing holdings in the Stock. It seems the expected volatility has not yet been fully factored into the current price. Please use our equity advice module to run different scenarios to ensure your current risk level and investment horizon are fully reflective of your current investing preferences in regards to Canadian Imperial.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Vlad Skutelnik do not own shares of Canadian Imperial Bank. Please refer to our Terms of Use for any information regarding our disclosure principles.

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