Case Study on Ust
1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the viewpoint of credit analyst or bond holder.
UST Inc. is a smokeless tobacco company with a long tradition and a recognizable brand name. A strong brand name can have lots of associations with high quality, revenues, soundness, growth, etc. But, this is one of the characteristics that can be like two edged sward. On one side, company with long tradition is expected to to operate in a stable and prosperous way as it always did, but on the other side, company itself can get too self confident and fail to see the newcomers and other threats. UST has ignored newcomers, and now they all have a growing market shares, while only UST Inc. total share, consequently, decreases. Smaller players are expanding their market share primarily by cutting prices, something that UST ignored. UST Inc. decided to fight competition not by decreasing prices, but with overstretching it product lines. However, this might not be the best solution. As the main player in the market, they had the better position to take on and win in the price war. If UST Inc. had been able to take this step, competitors probably would not be able to follow the price decrease imposed by the UST Inc and at least some of them would be shut down. So as one of the biggest drawbacks of UST 's policy can be slow reaction to new market conditions and worse of all when they react the reaction is inappropriate.
However, financial situation of the firm plays a very important role in the decision of the bondholder and this company has been one of the most profitable companies America in terms of ROE, ROA ad gross profit margin. Apart from decrease in earnings and cash flow in 1997, UST had continuous increases in sales (10-year compound annual growth rate of 9%), earnings (11%) and cash flow (12%). They are generating their cash flows out of the operations. Thanks to their premium
UST Inc. is a smokeless tobacco company with a long tradition and a recognizable brand name. A strong brand name can have lots of associations with high quality, revenues, soundness, growth, etc. But, this is one of the characteristics that can be like two edged sward. On one side, company with long tradition is expected to to operate in a stable and prosperous way as it always did, but on the other side, company itself can get too self confident and fail to see the newcomers and other threats. UST has ignored newcomers, and now they all have a growing market shares, while only UST Inc. total share, consequently, decreases. Smaller players are expanding their market share primarily by cutting prices, something that UST ignored. UST Inc. decided to fight competition not by decreasing prices, but with overstretching it product lines. However, this might not be the best solution. As the main player in the market, they had the better position to take on and win in the price war. If UST Inc. had been able to take this step, competitors probably would not be able to follow the price decrease imposed by the UST Inc and at least some of them would be shut down. So as one of the biggest drawbacks of UST 's policy can be slow reaction to new market conditions and worse of all when they react the reaction is inappropriate.
However, financial situation of the firm plays a very important role in the decision of the bondholder and this company has been one of the most profitable companies America in terms of ROE, ROA ad gross profit margin. Apart from decrease in earnings and cash flow in 1997, UST had continuous increases in sales (10-year compound annual growth rate of 9%), earnings (11%) and cash flow (12%). They are generating their cash flows out of the operations. Thanks to their premium