Ust Finance

1054 Words Mar 2nd, 2013 5 Pages
1) Frame the issue. Briefly describe that UST is planning to reverse a long-standing conservative financial policy.
Issues:
a) UST had seven pending health related lawsuits at the end of 1998. P.66
b) There’s previous uncertainty is enhanced by a lawsuit that alleged that UST had violated antitrust and advertising laws and participated in anti-competitive conduct. The industry agreed in November to settle state Medicaid lawsuits with a $206 billion settlement and bans on advertising and promotions that appeal to youth. P.66

c) UST is a dominant player of most smokeless tobacco, or most sniff, controlling approximately 77%. Also, UST expanded the category and continued to rise prices, smaller players eroded UST’s market share
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P.67

f)There is chance that hard to expand the tobacco to international market due to cultural issues tobacco, which limited the future industry development in the future.

Even though the company face lots of litigation and product diversification risk, the overall business risk is still low based on the price elasticity, inelastic consumer demand of the product. Also, the UST has introduced products in the price value market and sale their products in high price, which raise the value and demand in the market. Since the company has a steady demand and dominant market position and brand name with regard to their core business, the UST has a low business risk.

3) Discuss UST’s very profitable past financial performance. Is the past performance expected to continue in the future?
Income statement
5-Yr CAGR 10-Yr CAGR
Net Sales 5% 9%
EBIT 6% 11%
EPS 9% 13%

GPM 79.7% 77.3%
NPM 32.7% 31.3%
ROE 122.8% 89.1%
Div Payout 61.6% 51.4%
- From the Summary Financial information for UST Inc. Exhibit 3 showed that the compound annual growth per year has been decreeing in the past five years when comparing with the past ten years of Net Sales, EBIT and EPS. This due to the lawsuit, decrease consumer demand, increase in

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