BlueCity Holdings Current Financial Leverage

BLCT
 Stock
  

USD 1.54  0.00  0.00%   

BlueCity Holdings' 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. BlueCity Holdings' financial risk is the risk to BlueCity Holdings 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 Trending Equities.
  
Given that BlueCity Holdings' 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 BlueCity Holdings 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 BlueCity Holdings to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, BlueCity Holdings is said to be less leveraged. If creditors hold a majority of BlueCity Holdings' assets, the company is said to be highly leveraged.
Given the importance of BlueCity Holdings' capital structure, the first step in the capital decision process is for the management of BlueCity Holdings 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 BlueCity Holdings Limited to issue bonds at a reasonable cost.

BlueCity Holdings Financial Leverage Rating

BlueCity Holdings Limited bond ratings play a critical role in determining how much BlueCity Holdings 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 BlueCity Holdings' borrowing costs.

BlueCity Holdings Debt to Cash Allocation

As BlueCity Holdings Limited follows its natural business cycle, the capital allocation decisions will not magically go away. BlueCity Holdings' 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 a current ratio of 3.03, suggesting that it is liquid enough and is able to pay its financial obligations when due. Debt can assist BlueCity Holdings until it has trouble settling it off, either with new capital or with free cash flow. So, BlueCity Holdings' 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 BlueCity Holdings sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for BlueCity to invest in growth at high rates of return. When we think about BlueCity Holdings' use of debt, we should always consider it together with cash and equity.

BlueCity Holdings 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 BlueCity Holdings' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of BlueCity Holdings, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a BlueCity Holdings debt ratio should be compared their industry average or other competing firms.

Understaning BlueCity Holdings Use of Financial Leverage

BlueCity Holdings financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures BlueCity Holdings'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 BlueCity Holdings assets, the company is considered highly leveraged. Understanding the composition and structure of overall BlueCity Holdings 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.
BlueCity Holdings Limited operates a platform for LGBTQ community primarily under BlueCity brand in the Peoples Republic of China, India, South Korea, Thailand, and Vietnam. BlueCity Holdings Limited was founded in 2000 and is based in Beijing, China. BlueCity Holdings operates under Internet Content Information classification in the United States and is traded on NASDAQ Exchange. It employs 801 people. Please read more on our technical analysis page.

Be your own money manager

Our tools can tell you how much better you can do entering a position in BlueCity Holdings without increasing your portfolio risk or giving up the expected return. As an individual investor, you need to find a reliable way to track all your investment portfolios. However, your requirements will often be based on how much of the process you decide to do yourself. In addition to allowing all investors analytical transparency into all their portfolios, our tools can evaluate risk-adjusted returns of your individual positions relative to your overall portfolio.

Did you try this?

Run Price Transformation Now

   

Price Transformation

Use Price Transformation models to analyze depth of different equity instruments across global markets
All  Next Launch Module

Pair Trading with BlueCity Holdings

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 BlueCity Holdings 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 BlueCity Holdings will appreciate offsetting losses from the drop in the long position's value.

Moving against BlueCity Holdings

-0.9BIDUBaidu Inc ADR Upward RallyPairCorr
-0.9AVALGrupo Aval Acciones Upward RallyPairCorr
The ability to find closely correlated positions to BlueCity Holdings could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace BlueCity Holdings 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 BlueCity Holdings - 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 BlueCity Holdings Limited to buy it.
The correlation of BlueCity Holdings 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 BlueCity Holdings moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if BlueCity Holdings 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 BlueCity Holdings 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.
Pair CorrelationCorrelation Matching
Continue to Trending Equities. Note that the BlueCity Holdings information on this page should be used as a complementary analysis to other BlueCity Holdings' 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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

Other Tools for BlueCity Stock

When running BlueCity Holdings price analysis, check to measure BlueCity Holdings' 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 BlueCity Holdings is operating at the current time. Most of BlueCity Holdings' value examination focuses on studying past and present price action to predict the probability of BlueCity Holdings' future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move BlueCity Holdings' price. Additionally, you may evaluate how the addition of BlueCity Holdings to your portfolios can decrease your overall portfolio volatility.
Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Go
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Portfolio Anywhere
Track or share privately all of your investments from the convenience of any device
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go
Content Syndication
Quickly integrate customizable finance content to your own investment portal
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Go

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.