What is a bond analysis? How do you conduct a bond analysis before buying bonds?<\/p>\n\n\n\n
It’s important to do a bond analysis before deciding to buy any stocks. Bonds can be great investments as long as you do research. In The Intelligent Investor<\/em>, Benjamin Graham provides advice on how to do a bond analysis. <\/p>\n\n\n\n Read more about bond market analysis and strategies and why they’re necessary<\/p>\n\n\n\n\n\n\n\n The chief risk of buying bonds is that the issuing company defaults and goes bankrupt. By studying certain criteria of safety for a bond issuer, you can avoid risky bonds that might become worthless. This is particularly important as the historical trend has been for companies to take on large loans even as they struggle to show profits.<\/p>\n\n\n\n (Shortform note: In his commentary, Zweig issues a reminder that since bonds are sold in large increments (say, $5,000), an investor buying bonds herself would need $100,000 to properly diversify. Instead, modern investors are likely better suited by bond funds, which do the hard work of bond research and diversification for you.)<\/p>\n\n\n\n One part of bond market analysis and strategies is the interest coverage ratio. The major metric for bond safety is the ratio of earnings to total interest charges<\/strong>, also known as the \u201cInterest Coverage Ratio<\/strong>.\u201d This is a measure of how well the company can pay the interest on its loans. <\/p>\n\n\n\n If the ratio is below 1, then the company isn\u2019t generating enough profits to pay off its loans; this can in turn mean the company may default on its loans, which can then lead to bankruptcy and a reorganization of the company.<\/p>\n\n\n\n To be more precise, the ratio can be calculated in a few different ways:<\/p>\n\n\n\n Different industries have different minimum coverage ratios you can use for bond market analysis and strategies. For example, Graham proposes that retail and railroad companies should have a minimum interest coverage ratio of 5 averaged over the past 7 years, while utility companies can have a lower minimum of 4 due to its relative stability.<\/p>\n\n\n\n Beyond the interest coverage test, study other factors of the company:<\/p>\n\n\n\n What is a bond analysis? How do you conduct a bond analysis before buying bonds? It’s important to do a bond analysis before deciding to buy any stocks. Bonds can be great investments as long as you do research. In The Intelligent Investor, Benjamin Graham provides advice on how to do a bond analysis. Read more about bond market analysis and strategies and why they’re necessary<\/p>\n","protected":false},"author":5,"featured_media":13544,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,81,31],"tags":[184],"class_list":["post-23712","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-economics","category-money","tag-the-intelligent-investor","","tg-column-two"],"yoast_head":"\nBond Analysis<\/strong><\/h2>\n\n\n\n
Interest Coverage Ratio<\/strong><\/h4>\n\n\n\n
Other Safety Factors<\/strong><\/h4>\n\n\n\n