Debt to Asset Ratio

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Debt to Asset Ratio

The debt to asset ratio of a company is a strong indication of its financial health. A high debt to asset ratio indicates that a high percentage of the company’s assets are being financed by debt. Stock prices of companies that carry a high debt burden are especially sensitive to changes in the prevailing interest rate. Stocks of companies with high debt burdens may not be good risks for long term investing but may be good targets for day trading. As a company with a high debt to asset ratio may find its stock plummeting during interest rate hikes this sort of company might be good for options trading. Buying puts on a weak stock may be profitable if the stock price drops substantially. In that case traders will profit by the difference between the spot price of the stock and the strike price of the contract. A low debt to asset ratio will tend to support a higher stock price and, coupled with tangible assets, may be considered part of the margin of safety that long term investors seek in a stock.

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Debt to Asset Ratio

  1. 1. Debt to Asset RatioBywww.CandlestickForums.com
  2. 2. The debt to asset ratio of a company is astrong indication of its financial health.www.CandlestickForums.com
  3. 3. A high debt to asset ratio indicates that ahigh percentage of the company’s assetsare being financed by debt.www.CandlestickForums.com
  4. 4. Stock prices of companies that carry ahigh debt burden are especially sensitiveto changes in the prevailing interest rate.www.CandlestickForums.com
  5. 5. Stocks of companies with high debtburdens may not be good risks for longterm investing but may be good targetsfor day trading.www.CandlestickForums.com
  6. 6. As a company with a high debt to assetratio may find its stock plummetingduring interest rate hikes this sort ofcompany might be good for optionstrading.www.CandlestickForums.com
  7. 7. Buying puts on a weak stock may beprofitable if the stock price dropssubstantially.www.CandlestickForums.com
  8. 8. In that case traders will profit by thedifference between the spot price of thestock and the strike price of thecontract.www.CandlestickForums.com
  9. 9. A low debt to asset ratio will tend tosupport a higher stock price and,coupled with tangible assets, may bewww.CandlestickForums.com
  10. 10. considered part of the margin of safetythat long term investors seek in a stock.www.CandlestickForums.com
  11. 11. As with all factors affecting trading andinvesting the debt to asset ratio of acompany should be considered in regardto other factors in fundamental analysisof its stock.www.CandlestickForums.com
  12. 12. Successful penny stock investing has todo with finding the value in devaluedstocks.www.CandlestickForums.com
  13. 13. A company with a promising newproduct may have accumulated asubstantial amount of debt in order topay for research and development of foran aggressive promotional campaign.www.CandlestickForums.com
  14. 14. In picking stocks an investor might beless concerned about a high debt toasset ratio if the company’s price tosales ratio is low.www.CandlestickForums.com
  15. 15. In other words a company just startingto realize a high level of sales may putoff retiring debt in lieu of aggressivelymarketing their product, opening stores,etc.www.CandlestickForums.com
  16. 16. When a day trader finds a stock with ahigh debt to asset ratio he will be wisedo technical analysis of the stock.www.CandlestickForums.com
  17. 17. If the stock price is volatile it may be agood trading opportunity.www.CandlestickForums.com
  18. 18. Using technical analysis tools such asCandlestick analysis can allow the traderto anticipate and profit by market trendsand market reversal.www.CandlestickForums.com
  19. 19. Traders have been using Candlestickchart analysis ever since Candlestickbasics were invented centuries ago.www.CandlestickForums.com
  20. 20. This visual representation of stock pricemovement is not only useful for trackingstock but is also used in commoditytrading and trading options.www.CandlestickForums.com
  21. 21. In fact, a useful means of trading acompany with a high debt to asset ratiomay be to trade options on the stock.www.CandlestickForums.com
  22. 22. The trader who buys puts or buys callson a stock will only risk the price of theoptions premium.www.CandlestickForums.com
  23. 23. On the other hand the trader who sellsputs or calls on a very volatile stock endup with substantial losses.www.CandlestickForums.com
  24. 24. When trading stocks where the companycarries a high debt burden the traderneeds to understand if the stock is likelyto fall in price or if it has already sufferedsubstantial losses based upon its debt.www.CandlestickForums.com
  25. 25. Doing technical analysis with tools suchas Candlestick pattern formations willhelp the trader see where the marketprice of the stock is likely to go next.www.CandlestickForums.com
  26. 26. Online Stock Market Reviews presentedlive via the internet by Stephen Bigalowwww.CandlestickForums.com

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