Devoir France Télécom

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Here, can see that the ROE is mainly driven by the Assets turnover, which keep increasing despite the 2001 crisis. On the other hand, the Operating margins is severely hit by the Internet Bubble with a negative ratio of -19,24% in 2001 and – 44,66% in 2002. This means that €1 of sales generated negative earnings. This is quite understandable with the crisis The leverage ratio on the other hand is increasing until 2001 to reach almost 5 and then become negative in 2002 before going back to its level in 2003. This indicates how much Assets can be used with €1 of Equity and despite the negative number in 2002, the ratio remains quite strong. Then, let’s analyse the leverage effect.

The ratio remains is increasing from 1999
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4)For the investor, two elements are important regarding to the convertible bonds : first, convertible bonds can have the same structure than bonds (straight payoff with possibility to increase), but they are quite more risky, because if there is no conversion, they paid the same amount for a product than can be two times less rentable. Second, bonds are a call option on the equity, that means that there expectations should be bullish, hoping for an increase in share price. This should be their real goal, overwise it would be preferable to buy normal bonds.

5) 7,3% is the required growth rate : (25,81 – 19,05)/19,05 = 35,5% 4+ (113/365)=4,31 -1,3202=(1+x)^4,31 x= 1,3202^1/4,31 -1=7,3
The accounting cost of the convertible bond for France Telecom is the price that appears in its income statement and/or balance sheet. That is to say the total nominal value of the convertible bond which is considered a liability and as such appears in the balance sheet: €1 000 000 707.
However according to the IFRS, initially, the liability component is calculated by discounting the future cash flows of the bonds (interest and principle) at the rate of a similar debt instrument without the conversion option. FT’s 5 years Corporate Bond Yield is 3,90%. The true accounting cost should as a consequence be calculated with such a discount rate and with all the cash flows

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