Analysis
Mario Canales & Ly Dang
Case 30
Financial Cases & Problems
Dr. Alicia Rodriguez-Rubio
Fall 2014
Throughout the existence of an international corporation such as AutoZone, they have gone through a series of modifications that have permitted sustainability and stable performance during many years. Over the past five years, AutoZone’s stock price has seen a relatively steady increase. There have been some drops in the stock price during that period, but, for the most part, the stock price has been on the rise. The number of share repurchased by AutoZone during that period of time has also been consistent with the stock price as it has increased steadily. The ROIC has also mainly increased over the past five years. Moreover, AutoZone has been able to steadily increase its earnings per share.
However, stock purchases; reduce the supply of stock in the market, boosting the price. Many shareholders expect this activity to continue, expecting that AZO will continue to use available cash on hand from operations to finance more stock repurchases, although it will eventually be unbearable. AZO is increasing its fixed borrowing costs, increasing its leverage and dependence on the debt markets, and decreasing its fiscal viability.
Starting in 1998, AutoZone had returned capital to shareholders through share repurchases. AutoZone’s consistent repurchases reduced the number of shares outstanding by 39 percent from 2007 to 2011. The repurchases had been funded by operating cash flows and debt issuances. A share repurchase also had the effect of reducing a company’s equity on the balance sheet. Since AutoZone had been increasing its debt outstanding as it was decreasing the equity outstanding, its invested capital had remained fairly constant since 2007, which, when combined with rising earnings, resulted in strong measures of ROIC.
A share repurchase is a company buying back its own stocks from the market. It is basically a company using its
Case 30
Financial Cases & Problems
Dr. Alicia Rodriguez-Rubio
Fall 2014
Throughout the existence of an international corporation such as AutoZone, they have gone through a series of modifications that have permitted sustainability and stable performance during many years. Over the past five years, AutoZone’s stock price has seen a relatively steady increase. There have been some drops in the stock price during that period, but, for the most part, the stock price has been on the rise. The number of share repurchased by AutoZone during that period of time has also been consistent with the stock price as it has increased steadily. The ROIC has also mainly increased over the past five years. Moreover, AutoZone has been able to steadily increase its earnings per share.
However, stock purchases; reduce the supply of stock in the market, boosting the price. Many shareholders expect this activity to continue, expecting that AZO will continue to use available cash on hand from operations to finance more stock repurchases, although it will eventually be unbearable. AZO is increasing its fixed borrowing costs, increasing its leverage and dependence on the debt markets, and decreasing its fiscal viability.
Starting in 1998, AutoZone had returned capital to shareholders through share repurchases. AutoZone’s consistent repurchases reduced the number of shares outstanding by 39 percent from 2007 to 2011. The repurchases had been funded by operating cash flows and debt issuances. A share repurchase also had the effect of reducing a company’s equity on the balance sheet. Since AutoZone had been increasing its debt outstanding as it was decreasing the equity outstanding, its invested capital had remained fairly constant since 2007, which, when combined with rising earnings, resulted in strong measures of ROIC.
A share repurchase is a company buying back its own stocks from the market. It is basically a company using its