The company wants to take a $500.0 mil loan to rebuild its position and expand its line of business to heavy equipment. Should the company take the loan or seek other forms of investment? notes -Business overseas- 40% of company revenues -Domestic market- 60% of company revenues -Increase in competition -The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. -As of today, the firm has 50.0 million shares of common stock outstanding. Ratio Analysis 2021 Est. 2020 2019 Industry Average Liquidity Ratios Current Ratio (times) 2.34 3.22 3.68 4.2 Quick Ratio (times) 0.91 1.24 1.79 2.1 Asset Management Ratios Average sales/day 10.96 8.22 7.81 9 Inventory Turnover Ratio (times) 4.43 3.74 5.06 9 Days Sales Outstanding (days) 38.32 45.62 40.34 36 Fixed Assets Turnover Ratio (times) 2.12 2.52 3.27 3 Total Asset Turnover Ratio 1.32 1.37 1.69 1.8 Debt Management Ratios Total Debt to Total Assets (%) 59.09 48.58 47.6 40 Times Interest Earned (times) 7.9 6.81 11 6 Debt to Equity Ratio (%) 1.49 0.98 0.95 1 Profitability Ratios Profit Margin on Sales (%) 10.35 10.24 12.63 8 Earning Power (%) 26.08 27.39 39.2 17.2 Return on Total Assets (%) 13.67 14.02 21.43 12 Return on Common Equity (%) 34.52 28.29 42.86 25 Market Value Ratios Price/Earnings Ratio Price/Earnings Ratio (times) 3.79 3.65 12.5 Price/Cash Flow Ratio (times) 2.85 2.91 6.8 Market /Book Value Ratio (times) 1.06 1.54 1.7 Per Share Data 2021 2020 2019 Common Stock Price $ 28.0 $ 23.00 $ 26.00 Earnings Per Share (EPS) $ 8.20 $ 6.06 $ 7.12 Dividend Per Share (DPS) $ 1.15 $ 1.15 $ 1.06 Book Value Per Share (BVPS) $ 23.98 $ 21.72 $ 16.80 Cash Flow Per Share $ 10.39 $ 8.06 $ 8.92
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
The company wants to take a $500.0 mil loan to rebuild its position and expand its line of business to heavy equipment. Should the company take the loan or seek other forms of investment?
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notes -Business overseas- 40% of company revenues -Domestic market- 60% of company revenues -Increase in competition -The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. -As of today, the firm has 50.0 million shares of common stock outstanding.
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Ratio Analysis |
2021 Est. |
2020 |
2019 |
Industry Average |
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2.34 |
3.22 |
3.68 |
4.2 |
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Quick Ratio (times) |
0.91 |
1.24 |
1.79 |
2.1 |
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Asset Management Ratios |
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Average sales/day |
10.96 |
8.22 |
7.81 |
9 |
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Inventory Turnover Ratio (times) |
4.43 |
3.74 |
5.06 |
9 |
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Days Sales Outstanding (days) |
38.32 |
45.62 |
40.34 |
36 |
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Fixed Assets Turnover Ratio (times) |
2.12 |
2.52 |
3.27 |
3 |
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Total Asset Turnover Ratio |
1.32 |
1.37 |
1.69 |
1.8 |
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Debt Management Ratios |
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Total Debt to Total Assets (%) |
59.09 |
48.58 |
47.6 |
40 |
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Times Interest Earned (times) |
7.9 |
6.81 |
11 |
6 |
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Debt to Equity Ratio (%) |
1.49 |
0.98 |
0.95 |
1 |
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Profitability Ratios |
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Profit Margin on Sales (%) |
10.35 |
10.24 |
12.63 |
8 |
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Earning Power (%) |
26.08 |
27.39 |
39.2 |
17.2 |
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Return on Total Assets (%) |
13.67 |
14.02 |
21.43 |
12 |
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Return on Common Equity (%) |
34.52 |
28.29 |
42.86 |
25 |
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Market Value Ratios Price/Earnings Ratio |
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Price/Earnings Ratio (times) |
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3.79 |
3.65 |
12.5 |
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Price/Cash Flow Ratio (times) |
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2.85 |
2.91 |
6.8 |
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Market /Book Value Ratio (times) |
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1.06 |
1.54 |
1.7 |
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Per Share Data |
2021 |
2020 |
2019 |
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Common Stock Price |
$ 28.0 |
$ 23.00 |
$ 26.00 |
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Earnings Per Share (EPS) |
$ 8.20 |
$ 6.06 |
$ 7.12 |
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Dividend Per Share (DPS) |
$ 1.15 |
$ 1.15 |
$ 1.06 |
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Book Value Per Share (BVPS) |
$ 23.98 |
$ 21.72 |
$ 16.80 |
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Cash Flow Per Share |
$ 10.39 |
$ 8.06 |
$ 8.92 |
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