Hill Country Case Solution

The firm has decided to increase the debt finance component portion from 20% to 30% which is a good decision since the interest payments are 100% tax deductible. The appropriate capital structure would be to

Repurchasing shares with a 40% debt to total capital ratio would increase shareholder value, however repurchasing shares with an 80% debt to total capital ratio would significantly decrease shareholder value and therefore would not be advisable. Increasing debt increases shareholder value to a certain point. As this proforma shows, the point of diminishing return is somewhere between 40% and 80%.

. The higher the interest coverage ratio, the stronger the company financial strength, in 2016 second quarter Doller general was at 20.91 which mean Doller general strong financial future. Whereas debt to revenue ration work opposite, the lower its better. In 2016 second quarter Doller general was at 0.57, it's just the little more than 50% but I believe the serving other concept will still work. The Altman Z-score, when Z-score is greater than 2.99, it is in safe Zone "(gurufocus.com)". In 2016 second quarter Doller general has a Z=score of 4.91, which clearly indicate that the cooperation is safe

Risks posed by competitors-Every business has competitors and if those competitors present a direct threat to the business it will in turn put the viability of the business at risk. Risk mitigation strategies include, investing money developing new services which your competitors do not have, continue building rapport and relationships with members and the local community, research industry trends and deliver a specific service in an alternate way building value for the customer and vigorously monitor competitors paying particular attention to the price they

The first and most obvious risk is that the new product(s) will not meet the expectations of the customers. Another risk that is involved is that once the new product line is launched, local competitors may introduce it into their product line as well. A risk that also should be considered is how the new product line will impact the cost of production. New products are going to require new raw materials that are provided by suppliers. Will the same suppliers that are used with the company today be able to be utilized for the new materials or will new contracts with different suppliers be needed? The CEO wants to utilize some of the scrap resources that ABC already possesses, but it is unlikely that this amount of material will be enough to depend on solely.

Increasing the amount of debt can increase shareholder returns. Especially notice that it will increase ROE.

The ratio can provide early warning that a company is so overwhelmed by debt that it is unable to meet its payment obligations. This is also a funding issue, e.g. the owners of a company may not want to contribute any more cash to the business, so they acquire more debt to address the cash shortfall. Or, a company may use debt to buy back shares, thereby increasing the return on investment to the remaining shareholders. Although Jayadiri’s Debt/ Equity Ratio at approximately 1.5 for both the financial years is not overwhelmingly alarming overall, the company would be in a better position if it could address this by increasing its Equity and reducing its debt thus generating a more balanced/ higher proportion of

The first point is the about the level of leverage which has being increasing along the years and the underperforming of the interest cover ratio, it means that the company may have a high level of interest debt.

To determine CCI’s retention capabilities, we looked at Dun and Bradstreet’s key business ratios using CCI’s balance sheet and income statement. In selecting retention limits for a business, it is important to look at the company’s liquidity, net worth position, income maintenance, and their total debt. The greater amount of debt that a company has the more dependent a company is on risk transfer. Dun and Bradstreet’s ratios are broken up into three different categories: solvency, efficiency, and profitability.

The industry average for this ratio has constantly grown over the last 5 years. The companies included in our study however do not seem to display this trend, and are far below the industry average recorded each year. A higher interest coverage ratio indicates the ease by which an entity can service its interest obligations.

According to popular opinion, Investors should be careful in using the current ratio to assess the solvency of a company, since it can be easily manipulated. To be on a more accurate side, the company’s current ratio needs to be compared to the industry standard to determine whether it is a higher or a lower, good or bad, (Walther L. M. & Skousen C.J. 2009).

Finally, Vodafone has a remarkably good ratio interest coverage ratio at 5.94, although this ratio has been sporadic over the past 5 years with a high of 23.14 and a low of 2.73. It could be argued that the current ratio, as well as the ratio from the previous year, are actually too high, indicating that Vodafone is being too careful with the use of debt, which may mean lower risk, but also means lower returns. INCLUDE SAMSUNG INFO AND COMPARE WITH MARKET AVERAGES

Furthermore, due to agency conflicts, managers of companies with high leverage (debt-controlled) may forgo positive NPV projects, because the returns of such project will be transferred to debt holders rather than shareholders. Therefore, highly leveraged companies might have low amount of investment opportunities and thus a lower growth rate (Myers, 1984).

·     Managerial conservatism or aggressiveness. Some managers are more aggressive than others; hence some firms are more inclined to use debt in an effort to boost profits. This factor does not affect the true optimal or value maximizing capital structure but it does influence the manager in determining target capital structure.

Though the literature teens with several studies on the effect of debt financing and its capacity to accelerate growth, the factors that affect capital structure of quoted companies in United Kingdom manufacturing industry as it affect the financial performance are yet to be documented. Theoretical postulation also abound in the literature on the influence of firms’ characteristic such as size, asset structure, age, growth etc. the finding of some empirical work were in agreement with some were at variance to each other.