...Analysis: Debt-to-GDP ratio – United States compared to Germany Econ 201 Alexandria Walker University of Maryland University College Professor Mensah-Dartey Analysis: Debt-to-GDP ratio- United States compared to Germany United States Debt- to-GDP ratio In the last year the United States has painfully reached the net public debt to GDP ratio of 100 percent. This would be the federal government’s accumulated debt that is equal or has actually surpassed the United States Gross Domestic Product in 2010. After the debt ceiling limit was passed, the Treasury borrowed $238 billion in 2010. This brought public debt to $14.58 trillion dollars, slightly higher than the United States GDP in 2010, which was $14.54 trillion. It is believed that this is purely a domestic political issue. The international ramifications of the growing national debt are equally as important the domestic ones. After all, the United States primary creditors are overseas. The United States economy forms the bedrock of the global economy. Washington has the largest and most diverse economy in the world. Its currency is even more important, as the dollar is the currency used in most international transactions. This economic disaster stems from a troublesome history. The history of modern civilization is unique in that it contains some very simple figures that always act as causation for a certain result. In the case of debt, what is clear is that any country who sees its debt levels...
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...In the table above are financial ratios from four of the leading brands in the industry of wearable tracking devices. Each ratio explains a company’s operating and financial performance. The debt-to-equity ratio determines the financial leverage a company has based off of dividing its total liabilities over the total stockholder’s equity. When a firm’s debt-to-equity ratio is high, that means that the firm has been aggressive in financing its growth with its debt. As we can see from the table above, Fitbit has the highest debt-to-equity ratio. This may be because of the company being young in the market and not a big name brand like Nike (ratio of 9.92), that of which has solidified their brand footprint over the years in the market. Fitbit’s...
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...The common size debt ratio determines how much of a company's assets are made of liabilities. The lower the ratio is the better it is. A high ratio shows that the assets of the company are being funded with debt which can be risky. In Rite Aid case in 2008 the common size debt ratio was 114.14% and increased to 120.79% which is very high compared to the industry average which is 43.83%. In 2008, the common-size interest expense for Rite Aid is 1.82%, increased to 2.01% in 2009. The common-size interest expense ratio determines how much of the revenue is being spent to pay interest expense. A low ratio is good because the company is not spending too much on interest expense. Rite Aid’s common size ratio interest expense is twice the industry...
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...Since the end of Urban Outfitters last fiscal year, there has been a moderately significant change to their debt ratio. At the end of January 31st, 2011 their debt ratio was at .21 percent. One year later at the end of the most recent fiscal year, the debt ratio was .28 percent. There are very significant changes to Urban Outfitters total assets and total liabilities over the past two fiscal periods. At the end of the fiscal year in 2011, Urban Outfitters had 382.2 million dollars in liabilities and 1,794.3 million dollars in assets, compared to 417.4 million dollars in liabilities and 1,483.7 million dollars in assets. How did these huge changes occur in just one year? Urban Outfitters Cash and Cash Equivalents took a huge hit going from 345.3 million to 145.3 million. That accounts for almost all of the difference in their total assets, while every other asset column has small changes that add up. There was not a significant change in the total liabilities. Urban Outfitters had a drastic decrease in there total assets and a small increase to their total liabilities, which explains why the debt ratio changed the way it did. After reading these numbers and seeing the huge loss in assets, it would be safe to assume that Urban Outfitters was really struggling opposed to the industry norm. However that assumption is not correct, the .07 change is not too out of the ordinary of a change compared to the industry norm. The industry norm change was a raise in .06 percent, so there...
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...project Identify and evaluate sources of debt financing A company's debt, liabilities and risk are very important factors in understanding the company. Boeing Company's total debt has increased over the past five years. The company reported a five-year low of $7.512 billion in 2008 and a five-year high in 2009 at $12.924 billion. The company's 2011 reported total debt of $12.371 billion is an increase of 50.55% over 2007. Debt Ratios 3. Total Debt to Total Assets Ratio = Total Debt / Total Assets 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently in good financial condition 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently in good financial condition 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently...
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...University Miami Gardens, FL Term A3/ Summer 2011 June 2, 2011 Table of Contents Issues.......................................................................................................................................1 Facts.........................................................................................................................................1 Analysis.....................................................................................................................................1 Conclusions/Solutions/Recommendations...............................................................................3 I Issues: 1. What do you think is happening at Lloyd’s and The Emporium? 2. What financial ratios and questions raised in your analysis of the two companies’ financial statements support your opinions? II Facts: 1. In March 2002, Richard Allen, an assistant credit analyst for the quality Furniture Company, was concerned about changes in two of the Quality’s accounts in Minnesota – Lloyd’s, Inc., of Minneapolis and The Emporium department store in St. Paul. 2. Lloyd’s had been a customer of Quality Furniture for over 30 years and had previously handled it’s affairs in a most satisfactory manner. The Emporium was a comparatively new customer of Quality’s, having established an account in 1993. 3. Both accounts were sold on terms of 2%, 10, net 30, and although was not discounting, had been paying invoices promptly until...
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...Accounting Information and Predicting Financial Performance Financial ratios are often relied upon as a leading indicator of future financial performance by businesses. These accounting ratios and other company specific accounting information can be especially good predictors in the short run, but as the time horizon extends beyond a few years, these metrics lose predictive value. There are simply too many macro and external factors that the hard numbers cannot account for over the long-run. One way in which these accounting ratios have been tested with regards to predicting future financial performance is by back testing firms that entered bankruptcy. In his study of Italian corporate firms over a 3 year periods, Marco Muscettola used 32 accounting ratios to test the ability of those ratios to forecast future defaults. The two groups of ratios he found to be most predictive were capital structure ratios and debt coverage ratios. This is a logical conclusion as these ratios focus on liquidity and the ability for a company to meet its future obligations. The capital structure ratios evaluate the various ways a company uses debt to create assets by dividing long-term liabilities, debt, and payables by total assets to assess leverage. Debt coverage ratios seeks to evaluate the cost of financing by measuring interest expense as a percentage of total debt and sales and evaluate how total debt compares to sales and current liabilities. Muscettola surmises that it is...
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...sources of finance come from within the business and include retained profits. External sources of finance can be classified into two forms. Debt or equity. Debt is categorised as short term or long term. Short-term debts include; overdrafts, commercial bills and factoring, whereas long-term debts include; mortgages, debentures, unsecured notes and leasing. Equity can be issued through ordinary shares or through private equity. Liquidity is the ability to pay current liabilities with current assets. The ratio used to measure the liquidity of a business is the current ratio (current assets divided by current liabilities). An accepted ratio is 2:1, meaning the business has $2 of current assets for every $1 of current liability. In order to improve the current ratio, current assets must increase and current liabilities must decrease. This can be done through selling a non-current asset to increase cash. To decrease current liabilities, current liabilities should be added to the mortgage. A mortgage has low interest rates in comparison to overdrafts, which means the business is paying less interest, which means total liabilities will decrease. Another ratio used to measure the liquidity of a business is the quick ratio (cash divided by current liabilities). The quick ratio proves the available funds to cover current liabilities. The quick ratio is a more accurate way of measuring liquidity because if a business has lots of current assets, but majority of the current assets are accounts...
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...Limited (JYC). Those firms are rated by their market value of share capital. JBH and MYR both have market capital over $1 billion which are at the top of this industry. KMD and TRS are from the middle section which have market capital about $0.6 billion and $0.25 billion. The two bottom companies SNL and JYC are with $78 million and $14 million market capital respectively. This report, will firstly explain why do we use D/E ratio as a firm leverage, followed by comparing the advantages and disadvantages via debt financing, detail analysis of each company are included. Then, the report clarifies how we make assumptions and calculate the “optimal leverage”. Finally, the pathway each company could achieve its optimal is given. * Reasons to Choose D/E as Firm Leverage The debt-equity ratio we use is calculated by dividing Net Debt by Market Value of Equity. Net debt is the total debt minus cash. It is used to achieve a more relevant measure of leverage because the cash could reduce the risk of leverage. Market value of equity is considered in this ratio as it is more...
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...ACC4601 INTEGRATED CASE STUDY LECTURER : PROF. MADYA DR. MOHD HASSAN BIN CHE HAAT REPORT ON THETA EDGE PRESENTATION GROUP 6 NAME | MATRIC NO. | GEETHA A/P DEVATHASI | UK22121 | MUHAMMAD HASNUL HADI BIN DZULKIFLI | UK22798 | NUR SYAHIRAH BT MOHAMED KAMIL | UK22986 | NUR HANUN BINTI CHE HASSIM | UK23196 | SAIYIDA SALMA BINTI HAMDAN NOR | UK23255 | ABOUT THETA EDGE BERHAD THETA Edge Berhad formerly known as Lityan Holdings Berhad (LHB). LHB was established in 1984. Their main business was in systems integration, e-business and network infrastructure. LHB enter KLSE on 1 March 1994. Their major shareholder is Lembaga Tabung Haji. LHB classified as a PN17 company on 10 May 2005. It rebranded itself as THETA Edge Berhad on 30 April 2010. ISSUE 1 The first concern is that THETA in trouble in their investment in a Philippines operation, LPI, incorporated on 27 August 1997 with the paid up capital of 217,231,700.00 (approximately RM17.4 million). LHB held 98% while the remaining 2% was held by a Filipino. Unfortunately, LPI had incurred heavy losses from its business activities. This is because the growth of the payphone industry in the Philippines was not well mainly due to the threats from the mobile phone industry. ISSUE 2 LHB and its few subsidiaries defaulted several financial and banking facilities to various bankers. It leading to a number of loan defaults. This is due to financial woes in subsidiaries(foreign operations) and...
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...Solution 1: Estimate the beta, based upon comparable firms, and after adjusting for risk. o Step 1: Collect a group of publicly traded comparable firms, preferably in the same line of business, but more generally, affected by the same economic forces that affect the firm being valued. A Simple Test: To see if the group of comparable firms is truly comparable, estimate a correlation between the revenues or operating income of the comparable firms and the firm being valued. If it is high (and positive), of course, you have comparable firms. o Step 2: Estimate the average beta for the publicly traded comparable firms. o Step 3: Estimate the average market value debt-equity ratio of these comparable firms, and calculate the unlevered beta for the business. unlevered = levered / (1 + (1 - tax rate) (Debt/Equity)) o Step 4:...
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...risk of Delta calculating the below ratios. Business risk Based on exhibit 8, which shows the industry growth rates, we can observe that the industry growth rate has declined in the end of the 80’s and since then it is around 3%. Based on this information we conclude that Delta cannot expect a high growth rate in the next few years. ROA=net income/total assets ROA(1993)=-3.7% ROA(1992)=-6.6% We cannot compare the ROA of Delta with the ROA of other companies in the industry but we can compare it to the previous years. Although ROA is negative in 1993 there has been an improvement since 1992. The negative ROA in 1993 shows that the company is still not profitable relative to its total assets. Finance risk Short term Current ratio=current assets/current liabilities which refers to the short term solvency of the company. Current ratio=2.76 This ratio shows that the company can finance it debt on the short term. Long term The Debt Ratio measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Debt ratio=debt/total assets=0.66 Therefore 66% of Delta’s assets are financed by debt. This ratio is not too high given that the company is in the mature stage of its lifecycle. Debt to Equity ratio=2.99 For capital-intensive industries this ratio usually is above 2. Due to the recapitalization plan in 1993 Delta Beverage has agreed to maintain certain coverage ratios...
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...IMPORTANT; Project Finance Coverage Ratios DS = Interest Payment + Principal Repayments due on a given date CADS = Cash Available for Debt Service CADS equals to pre-tax operating income plus interest income from reserve account minus mandatory capital expenditure minus investment in net working capital minus required contributions to reserve accounts. Note: Depreciation & amortisations should be added back to net operating income. Indirect taxes should also be subtracted from operating income if included in operating income earlier but income tax should not be deducted. Normally debt service reserve accounts are not considered for the purpose of DADS. DSRA = Debt Service reserve Account is created when there is surplus cash inflows & used up when there is a cash short fall. FCF = Free cash flow equal to EBIT after taxes plus depreciation & amortisation, minus capital expenditure & increases in net working capital. KD = The cost of debt (i.e. stated interest rate); if there are multiple tranches or instruments, then it is weighted average cost of debts. Interest Coverage Ratio (e.g. Times Interest Earned i.e. TIE) = This ratio is rarely used in project finance because debts are of finite periods & rarely rolled over unlike in corporate finance. Debt Service Coverage Ratio (DSCR) or Annual Debt service Coverage Ratio (ADSCR) = CADS / DS (year-by-year) Minimum & maximum of DSCR depicts...
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...70 countries worldwide, with about 175 manufacturing and processing facilities that include 150 chemicals and specialties plants, five petroleum refineries, and 20 natural gas processing plants. The company has more than 60 research and development labs and customer service centers in the United States, and more than 20 labs in 10 other countries. Currently, Du Pont is the thirteenth largest U.S. industrial/service corporation (Fortune 500). Until the 1960's, the company's capital structure had historically been very conservative, with the corporation carrying little debt (Figure 1). This was possible primarily because of the enormous success of the company. However, in the late 1960's, competition for Du Pont had increased considerably, and the company experienced decreased gross margins and return on capital Figure 1. The capital structure of the Du Pont company from 1965 to 1982. The company had very little debt as late as 1965, but after the acquisition of Conoco, Du Pont changed to a considerably more leveraged capital structure. During the 1970's, three primary variables combined to exert considerable financial pressure on Du Pont: (i) the company embarked on a major capital spending program designed to restore its cost...
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...tax)(EBIT)(1-T) • the tax shield on Capital Cost TCCA • Incremental net working capital requirements NWC • incremental long-term assets Capex. At the end of the study period we also have estimates of cash inflow from sale of residual assets (RV), or the present value of FCFs which extend beyond the study period called continuing value (CV) RSM 2301 Financial Management - Fall 2011 © Asher Drory All rights reserved 9- 3 Valuation Alternatives: NPV vs. APV Models Net Present Value (NPV) NPV Expansion Decisions 9- 4 t t 0 FCFt (1 k )t Where: k = WACC keu is unlevered equity return (i.e., the equity return of an equivalent unlevered firm) T is the corporate cash marginal tax rate Vd is the value of debt Note: NPV ≡ APV by definition Adjusted Present Value (APV) APV t FCFt TVd (1 keu )t t 0 The static NPV model discounts FCF by WACC • The analyst...
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