Debt Policy at UST 1. How well is UST doing? * UST has been doing extremely well. Revenues and earnings are growing at 9% and 11% respectively. * Named by Forbes as one of the top companies in terms of profitability. ROC‚ ROE and GPM one of the industry highest. * Paying back generous dividends of $2.2b and repurchasing $2b from 1988 to 1998. * However‚ they seem to be losing market share in the premium market to competitors and have not been able to make an impact in the
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UST Case Study Steven Kinyon Phillip LeCheminant Ryan Makahilahila 1. UST has a long history of conservative debt policy. Briefly describe why UST is considering a recapitalization that involves issuing debt and repurchasing equity. UST has a long history of a conservative debt policy. However‚ in 1998 they reinstituted their share buyback program. This means that they intended to issue up to $1 billion in debt in order to repurchase equity. Their intentions in repurchasing equity are to maximize
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considered. Required debt rate and pro forma income statement Risk determinants Credit rating agencies take a wide range of factors – debt raising purpose‚ industry outlook‚ corporate profile and financial measures into account when performing corporate bond rating service. Debt is raised to repurchase shares rather than the normal case of capturing expansion opportunities to strengthen cash flow. This is not going to be regarded favorable to debt holders since the debt coverage ability in terms
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1. Assess the business and financial risks of UST Business risks are relatively low: Main risk is that UST has undiversified business‚ it basically relies on one product However its main product is noncyclical‚ it carries little systematic risk Imminent increase in excise tax on smokeless tobacco (however‚ tobacco demand is considerably inelastic) It is the (sub)industry leader (market share >85%)‚ industry is an oligopoly which implies high barriers for potential competitors to enter the market
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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
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| Group Assignment 1 | UST Case Study | 2/19/2013 | | | | Question 1: In order to calculate the impact of the leverage recapitalization on UST’s value‚ we used the WACC and APV methods to calculate its value before and after the recapitalization. WACC Method Using the WACC method‚ we first derived UST’s return on assets (rA). Since we are given the firm’s market capitalization‚ debt and cash‚ we calculated the current Enterprive Value of UST. We were then able to derive
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“UST Inc” case study The primary business risks associated with UST are as follows: First‚ legal challenges will cause litigation expenses‚ lawsuits expenses and settlement payments‚ which will decrease the operating income and cash flow and will increase the risks of debt default. From the industry level‚ the smokeless tobacco manufactures have faced less exposure to health related lawsuits than cigarette manufactures because the scientific evidence linking smokeless tobacco to cancer is less
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MEMORANDUM TO: UST Inc. Investors CC: FROM: DATE: SUBJECT: Debt Policy at UST Inc. ADD INTRO PARAGRAPH From the viewpoint of the bondholder‚ UST Inc. has various attributes that make the company a safe‚ yet sometimes risky investment. Qualities that make UST Inc. a superior investment include their excellent A-1 credit rating and their strong brand name and market position‚ which has made UST Inc. one of the most profitable companies in corporate America. While their asset tangibility
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Sep) UST Inc. is considering a debt-for-equity recapitalization. In the deal‚ UST will issue $1 billion debt to buy back stocks. In class we argue that an important determinant of a firm’s debt policy is the tradeoff between the tax benefits of debt and the costs of financial distress and bankruptcy. Mature firms generating positive and stable operating income are more likely to take advantage of the debt tax shields and less likely to verge on bankruptcy‚ and thus may consider using more debt in
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UST Company UST Company is a retail company located in Hong Kong. This case contains information about the company’s accounting records and activities for 2016. The owner of the company has asked you to use this information to generate the company’s 2016 financial statements according to the International Financial Reporting Standards (“IFRS”). Requirements: A. Create an accounting equation worksheet for UST Company. This worksheet should include all the accounts listed in the company’s chart of
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