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Credit Rating & Debt Policy

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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Rafay Farooq
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48 views18 pages

Credit Rating & Debt Policy

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.

Uploaded by

Rafay Farooq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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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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