Stock and Outstanding Shares

If MCI wants to issue $500 million of 20-year subordinated debentures, we first calculate the interest payment, which is $62.5. The total interest payment would be $116.6 by adding up the previous net interest, so we can calculate the interest coverage ratio by dividing the operating income in 1983 by the total interest payment, which is 2.53. Then we look up the

The debt-to-equity ratio in 2003 and 2004 imply the company is also using more long-term debt from shareholder equity to run the company. In 2004, the balance sheet shows a jump in the number of share of common stock. The selling of more stock to pay for long term debt is not usually a good signal to investors. It may mean a corporation wants more cash to finance activities, which in conjunction with other figures could mean it is trying to offset some losses. A lower times interest earned ratio may also mean fewer earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates. This ratio has declined dramatically since 2002.

If BBBY were to use $400 million in excess cash and $636.3 million in borrowed funds to repurchase it's shares they would increase their basic earnings per share from 1.35 to 1.41 and their diluted earnings per share from 1.31 to 1.37. If BBBY were to use $400 million in excess cash, and borrow $1.27 billion to repurchase their shares, the increase of the basic earnings per share would only be 0.3 while the difference from zero debt to

Wrigley had an interest coverage ratio of 1.47 (see appendix ‘Interest Coverage Ratio calculations’) which is borderline and questionable regarding the company’s ability to repay loan interest. showing the ability to repay loan interest is borderline questionable. If we look at exhibit 6 (see Appendix), we can see that 1.47 is indeed between B and BB; non-investment grade; due in part because WACC has only increased by 0.001% (see appendix ‘WACC’).

The earnings per share of the common stock is a financial metric for a business' net income believed to be available to reward the common stock shareholders. The ratio is usually calculated by dividing the difference between the net after-tax profits and dividends attributed to preferred shareholders with the average number of outstanding common shares. Significantly higher earnings per share imply that the business is capable of paying reasonable dividends to the common shareholders while a low ratio indicates a reduced ability for the entity to declare and pay reasonable dividends to its common shareholders. From the comparison, Nike has a higher EPS ratio at 1.05 compared to 0.98 for Under Armour. This implies that Nike is performing better than Under Armour and that Nike could be either making increasing earnings or repurchasing its stocks while Under Armour is performing dismally. This low ratio for Under Armour is an

The key issue is what will be the expected EBIT next year and thereafter. If one assumes $514 million, the issuance of $3 billion in debt reduces the expected EPS from $1.33 to $0.41 with repurchase, or $0.32 with dividend. This results simply from increased interest expense and the variation in the number of shares outstanding. Clearly, shareholders should brace for much worse EPS results after the recapitalization.

The number of shares outstanding will remain the same and thus, the only change in the equity side of the balance sheets for the next three years will be the change in the amount of retained earnings. This change will be equal to the net income of the company for last year because the company will not pay a dividend.

The debt line is steeper than the equity line because use of debt financing causes EPS to change at a greater rate as EBIT changes – the essence of financial leverage. The double-edged sword aspect of financial leverage – as the lines diverge from the indifference level the gap between EPS with debt and EPS with equity widens. The right-hand divergence is good - financial leverage helps. The left-hand divergence is bad – financial leverage hurts. The EBIT Chart helps display the EBIT-EPS relationship for any level of EBIT in any year.

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

The interest coverage ratio of Massachusetts Stove Company at year eleven is 1.68 which is below 2; meaning that they might not even have the capacity to pay their

We have incorporated the NEWS in our model, and have taken out the assumption of $100 million debt in 1Q16. There are no significant differences for 2016 earnings and NAV. However, 2017E FFO, Core FFO and AFFO have decreased by $0.01 per share to $1.69, $1.94 and $1.85 respectively.

The smaller the interest coverage ratio, measuring the capability of the company to pay their interest expenses on outstanding debts, the more difficult it is for the company to meet their interest expenses. Although the trend is negative since the interest coverage ratio has decreased from 7.525 in 2009 to 6.085 in 2011, the interest coverage ratio is still healthy and so Carnival Corporation has enough earnings to pay the interest on the debt. Therefore, Carnival Corporation is effectively managing its current loans and interest payments are being performed by their due

William Wrigley Jr. Company is exploring whether it is optimal to recapitalise with taking on $3 billion of debt. Three options are revised; borrow and repurchase shares, dividend payouts or continue to function with full equity. Debt will provide a tax shield of $1.2 billion given the tax rate is 40%, this should increase the market share price to $61.53 per share. The viable method for the company is to utilize this debt to repurchase shares. The will not only increase Wrigley’s market value, via the debt shield, but also signal to market that management believes Wrigley’s is undervalued, something the dividend payment won’t achieve.

If a firm utilizes debt financing, an X% decline in earnings before interest and taxes (EBIT) will result in a decline in earnings per share that is larger than X.

In order to determine the cost of debt, interest coverage ratio should be computed firstly. Based on BAL’s annual report 2015, it is easily to calculate the interest coverage ratio that is 245.72, implying that credit rating is AAA. Therefore, the result of cost of debt should be 2.77%.