Does Renren (NYSE:RENN) has enough cash to last in March?
 | By Gabriel Shpitalnik | Macroaxis Story |
The stock is still going through an active upward rally. As many investors are getting excited about consumer cyclical space, it is fair to outline Renren Inc as an investment option. What exactly are Renren shareholders getting in March? Here we also measure the ability of Renren to meet its long-term debt obligations, such as interest payments on debt, the final principal payment on the debt, and any other fixed obligations like lease payments.
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Reviewed by Vlad Skutelnik
The company currently holds 32.03 M in liabilities with Debt to Equity (D/E) ratio of 0.26, which may suggest the firm is not taking enough advantage from borrowing. Renren Inc has a current ratio of 0.63, indicating that it has a negative working capital and may not be able to pay financial obligations when due. Renren financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures the total debt position of Renren, including all of Renren'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 Renren assets, the company is considered highly leveraged. Understanding the composition and structure of overall Renren 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.
Watch out for price decline
Please consider monitoring Renren on a daily basis if you are holding a position in it. Renren is trading at a penny-stock level, and the possibility of delisting is much higher compared to other delisted stocks. However, just because the stock is trading under one dollar, does not mean it will be marked for deletion. Most exchanges require public instruments, such as Renren stock to be traded above the $1 level to remain listed. If Renren stock price falls below $1 for 30 consecutive trading days, the exchange can delist it. Once the company reaches this point, they will be sent an initial price violation notice directly from an exchange.
How important is Renren's Liquidity
Renren financial leverage refers to using borrowed capital as a funding source to finance Renren Inc ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Renren 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 Renren'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 Renren'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 Renren's total debt and its cash.
Breaking it down a bit more
The latest price rise of Renren Inc created some momentum for institutional investors as it was traded today as low as 8.27 and as high as 11.84 per share. The company directors and management may have good odds in positioning the company resources to exploit market volatility in March. The stock standard deviation of daily returns for 30 days investing horizon is currently 9.12. The very high volatility is mostly attributed to the latest market swings and not very good earnings reports from some of the Renren partners.
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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 Gabriel Shpitalnik do not own shares of Renren Inc. Please refer to our Terms of Use for any information regarding our disclosure principles.