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    Credit Rating & Debt Policy

    Uploaded by

    Rafay Farooq
    The document analyzes the financial performance and credit rating of a tobacco company, reviewing metrics like profitability ratios, capitalization ratios, coverage ratios, and market share over time. It finds the company has strong brands and financial returns but also faces litigation and regulatory risks. Based on the analysis, it recommends a credit rating of AA- and that the company can proceed with $1 billion in borrowing given its financial position and market value.

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    Credit Rating & Debt Policy

    Uploaded by

    Rafay Farooq
    26 views18 pages
    The document analyzes the financial performance and credit rating of a tobacco company, reviewing metrics like profitability ratios, capitalization ratios, coverage ratios, and market share over time. It finds the company has strong brands and financial returns but also faces litigation and regulatory risks. Based on the analysis, it recommends a credit rating of AA- and that the company can proceed with $1 billion in borrowing given its financial position and market value.

    Original Description:

    Original Title

    DR6- Session 20

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    The document analyzes the financial performance and credit rating of a tobacco company, reviewing metrics like profitability ratios, capitalization ratios, coverage ratios, and market share over time. It finds the company has strong brands and financial returns but also faces litigation and regulatory risks. Based on the analysis, it recommends a credit rating of AA- and that the company can proceed with $1 billion in borrowing given its financial position and market value.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    26 views18 pages

    Credit Rating & Debt Policy

    Uploaded by

    Rafay Farooq
    The document analyzes the financial performance and credit rating of a tobacco company, reviewing metrics like profitability ratios, capitalization ratios, coverage ratios, and market share over time. It finds the company has strong brands and financial returns but also faces litigation and regulatory risks. Based on the analysis, it recommends a credit rating of AA- and that the company can proceed with $1 billion in borrowing given its financial position and market value.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 18

    Credit Rating &

    Debt Policy

    DR - 6
    Qualitative
    • Industry Dynamics
    • Company Profile
    • Brand Equity
    Discussion
    • Business Risk
    • Litigation and Legislative Risks Outline
    Quantitative
    • Profitability Ratio Analysis
    • Capitalization Ratio Analysis
    • Coverage Ratio Analysis
    Forbes: Most profitable company
    (1997)

    Past
    Performance
    5 year return on capital: 92.1%
    Net Sales
    $1,600.00

    $1,400.00

    $1,200.00

    $1,000.00

    $800.00

    $600.00

    $400.00

    $200.00

    $0.00
    1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
    Past Performance
    Sales Growth Gross Profit Margin
    20.00%
    82.00%
    18.00%
    80.00%
    16.00%
    14.00% 78.00%

    12.00% 76.00%
    10.00% 74.00%
    8.00%
    72.00%
    6.00%
    70.00%
    4.00%
    2.00% 68.00%

    0.00% 66.00%
    1986 1988 1990 1992 1994 1996 1998 2000 1986 1988 1990 1992 1994 1996 1998 2000

    03
    UST - % Market Share
    88.00%

    86.00%

    84.00%

    82.00%

    80.00%

    78.00%

    76.00%

    74.00%

    72.00%
    1991 1992 1993 1994 1995 1996 1997 1998
    Competitors - % Market Share
    14.00%

    12.00%

    10.00%

    8.00%
    Conwood
    Swedish Match
    6.00% Swisher
    Other Manufacturers
    4.00%

    2.00%

    0.00%
    1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
    Industry Analysis
    • Smokeless Tobacco Market of $2 Billion

    • 1-3% Expected Market Growth

    • Rise of Value Segment

    • UST – Market Share

    • Target Market

    • Consumer Perception
    Business Risk
    • Litigation Risks

    • Potential Legislative Restrictions

    • Promotional Restriction

    • Individual’s Perception

    • Anti-Trust Laws

    • Lack of Global Growth Opportunities


    Brand Equity
    • Strong Brand Presence
    • A Premium Product
    • Continued Growth for Moist Smokers Tobacco

    Competitor Analysis
    • Late Entry into Value Market
    • Product Diversification
    • Steady Returns
    Financial Ratios
    Profitability Ratios

    • Net Profit Margin

    • Return on Assets

    • Return on Equity
    Financial Ratios
    Profitability Ratios
    Financial Ratios
    Profitability Ratios
    Financial Ratios
    Profitability Ratios
    Financial Preparation for Millennials | EWCG 04

    Financial Ratios
    Capitalization Ratios

    • Debt/Equity Ratio: 21% (1998)

    • Debt/Capitalization Ratio
    Financial Preparation for Millennials | EWCG

    Financial Ratios
    Coverage Ratios

    • EBIT Interest Coverage (x) : 101.5

    • EBITDA Interest Coverage (x) : 105.6


    04

    Rating Criteria
    Adverse Effects due to:

    • Litigation Risk

    • Business Risk
    Recommendations
    Rating: AA-

    Go Ahead with $1 Billion Borrowing

    • Increase in Market Value of UST

    • Shareholders value Increases

    • Financial Leverage will Increase bringing down the Cost of

    capital.

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