Comparison Of Glenwood Heating, Inc. And Eads Heater Essay

1) It is obvious that when take on more debt, the risk of ability to service the interest payment is increased. However, in case of AHP they still have a certain level to absorb more debt into their balance sheet. Even at 70% Debt to Total Capital ratio, their interest coverage still better their competitor.

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (Eds.). (2011). Essentials of corporate finance (7th ed., Rev.). New York, NY: McGraw-Hill Irwin.

CML's equity ratio increased to 0.4 and correspondingly debt ratio decreased to 0.15 from 2001 to 2005. Generally it is a good trend, even though there has been a decrease in equity ratio in 2005 from 0.45 to 0.40 and an increase in debt ratio from 2004 to 2005, it may be due to the acquisition from US group KKR. However, in 2005, equity is almost three times debt, which means the capital structure is still in good condition.

The purpose of this paper is to advise analyze the financial statements of Dillard’s, Inc. in order to recommend whether or not my client should invest $1 million in the large retail company. I will compare the financial statements of Dillard’s, Inc. its competitor, Kohl’s Corporation. Investing in retail can be risky because a retail company’s performance is very heavily influenced by factors that have nothing to do with the actual company such as the overall performance of the economy or the weather during the holiday shopping season. There is, however, potential for profitability within the retail sector. Based on my analysis, I recommend that the client should not invest in Dillard’s, Inc. for the following reasons. First, Dillard’s has experience a decline in net income in the last three years. Second, liquidity ratios indicate that they could face possible liquidity constraints in the future. Third, long-term debt paying ability ratios indicate that the company could have trouble paying off the principal of its current debt obligations. Fourth, the profitability ratios are well below industry averages, suggesting that there are more profitable companies to invest in within the industry. And finally, Investor analysis ratios provide mixed opinion of the future performance of the company. I conclude that retail can be a profitable industry to invest in if an investor has the risk tolerance and risk capacity to withstand the uncertainty, but neither Dillard’s

* We compared our past and projected ratios to the industry benchmarks to analyze the effects of taking on different levels of debt.

An analysis of a repurchase of stock for $400 million cash, and recapitalization to 80% debt-to-total capital by borrowing $1.27 million reveals that BBBYs return on equity will be 113%, return on assets 61% and an after tax cost of debt of 28%. ROE is > ROA and ROA > after tax cost of debt. With the 80% debt-to-total capital structure ROE exceeds the other two capital structure scenarios of no debt and 40% debt-to-total capital. While all of this looks great there are other considerations. The household and personal products industries debt to total asset ratio is 34.69% while BBBY debt to total asset ratio is at 44% ($1,270,000/$2,865,023). Increasing to this capital structure would also reduce shareholders earnings per share.

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

Target Corporation is having a very stable financial policy and dividend policy. From the historical financial data, Target had debt $11,044M, $11,202M, $10,599M, $17,471M, and $19,882M in the year of 2005,2006,2007,2008, and 2009 respectively. The long-term debt/equity ratio rises from 69.34% to 108%.

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

We assume linear increase in the EBIT and EBITDA at 3% for 1999 from 1998 figures. Considering the debt will be long-term, we test both 10- and 20-year corporate yields as interest rates to see what would be the coverage ratios, using the 1999 projected figures.

Our analysis attempts to answer the question, “What are the things a company must consider when analyzing a new investment or project?” According to the text, a firm’s first objective when deciding to take on new debt should be that its return on net assets (RONA) should be greater than its weighted average cost of capital (WACC). Since we are working with an income statement only and do not have an amount for net assets, we will instead use return on invested capital (ROIC), which measures how well a company is using its money to generate returns. Comparing a company 's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effectively. From our spreadsheet calculations we see that using our estimated operating profit provides us with a 19.9% return on invested capital with only a 7.2% weighted average cost for that same capital. If these numbers are even close to correct, George should definitely make the move.

The cost of debt (kd) rate of 13% was used after we assessed the key industrial financial ratios and compared them with that of Wrigley’s (See Appendix 2) to conclude that it was in the range between the BB rate of

Microsoft’s times interest earned ratio is 87.7, showing that this firm is very successful especially before any interest or tax is deducted from its overall earnings. Apple’s times interest earned ratio could not be calculated due to the fact that their data didn’t indicate a specific interest expense to complete the equation. Another solvency ratio is the debt to equity ratio (I); taking the firms total liabilities and dividing that total by owners’ equity. Currently Microsoft’s debt to equity ratio is 0.8, showing that there is less risk among the firm’s financials. This also means that the company doesn’t rely too much on external lenders. Apple’s debt to equity ratio seems to also be within good standing because it is .5, so it doesn’t rely too much on external lenders either. Overall, both liquidity and solvency ratios represent how financially stable this company is within converting its current debt into cash as well as its long-term debt. In most cases Apple Inc. falls behind Microsoft Corp. within its short and long term debt solvency.

In this report, we will outline the capital structure of SKY, policies and theories used to support their financial activities. We use SKY’s financial data collected from their financial reports over 5 years period and from NZX to calculate their capital structure components such as WACC, beta, debt to equity ratio, and capital risk management. The data will then be analyzed and used to justify SKY’s implemented capital structure policies.