Evaluate the long term financing of Stemlife Company Stemlife Company’s capital structure is made up of 100% equity. It has two types of equities; ordinary stocks and retaining earning. Stemlife issues two types of stocks; stocks capital and stocks premium. There are several advantages of offering common stocks. First, by issuing common stocks the company can raise a large sum of money (Anonymous, etd). Secondly, the board of directors can decide on the amount of dividend paid to the stockholders (Anonymous, etd). Thirdly, the company needs not pay the stockholders if it is not doing well (Anonymous, 2006). The company also does not have a maturity date to repay the fund (Anonymous, 2006). There is also less restriction to follow in …show more content…
The company has very little debt and its equity is definitely able to support all the money owing. Stemlife has a strong balance sheet as it has a high level of equity and low level of debt. This indicates that investing in this company will most probably provide a good return. Debt equity ratio compares the relationship between liabilities with equity. It shows the level of assets funded with debt rather than equity. It also measures the ability of the company to maintain in the market in the long run. If the company has a ratio higher than the industry ratio, the company has a high probability of not being able to settle the debts (Anonymous, 2006). Stemlife’s debt to equity ratio is 11%. Thus, it should not be a problem for Stemlife to repay its debt. Stemlife should also be able to maintain in the market for long term as it has substantial assets to support its liabilities. This ratio also determines the company’s ability to obtain financing (Anonymous, 2006). There should not be a proble for Stemlife to get fund. Return on Equity (ROE) ratio compares the net income to equity. This ratio shows the return a company gets through investing its equity (Anonymous, 2006). The greater the ratio the greater the return the company is earning. Stemlife has an ROE of 12% , which means for every ringgit of equity invests, the company gets a 12 cent increase in income. Stemlife’s investment is making profit.
The interest rates in the markets have been low and Linear wants to use cash in a conservative manner. Also since buying its own stock doesn’t affect the value of the firm and in turn the shareholders this is a wise option.
The advantages of leveraging the company is the money they would save on the tax shield, higher EPS, higher dividend payouts, and extra cash available for expansion and repurchase of shares.
I. Rate of Return on Total Assets: Measures the company’s profitability relative to total assets. A percentage increment for Company G, from 12.30% to 13.68% (2011-12) keeps them above industry benchmarks (8.60% and 12.30%). Rate of Return on Total Assets represents strength for Company G.
Since an ROE of 21.48% equals the product of 4.41% and 4.87 (ROA and Equity Multiplier), it indicates that the firm is able to achieve such high ROE only through a high financial leverage.
Hart Venture Capital (HVC) specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for the Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $350,000 in year 3. In exchange of their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2,
The Return on Equity ratio is a measure of the efficiency with which a company employs owners’ capital. It
When combining the figures for ROE, ROA and the DuPont analysis it appears that the company is using leverage favourably. ROE is greater than ROA and assets are greater than equity. This is a positive sign for shareholders as it suggests a good investment return in a company that is managing its shareholder equity well (Evans & McDowell, 2009).
Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.
This question is designed to focus the class on the share repurchase program as a critical use of funds for 2006. The primary advantage of share repurchases using dividends is that management can turn share repurchases off and on as allowed by cash flow. The other projected uses of funds, however, are largely driven by business issues that are not as flexible for management. Students should notice that
Next is Asset turnover with .55 times which is a measure of the efficiency of asset utilization. Finally the equity multiplier with 2.26 which is a measure of financial leverage of the firm. When compared to the traditional ratios we get similar results; Profit margin 25.44% (27% DuPont) versus 18.75% industry average. Asset turnover is .54 (.55 DuPont) versus .50 industry average. Equity multiplier 2.28 times (2.26 times DuPont) versus 2 times industry average. The results show that the DuPont analysis using ROE as the main determinant are very similar to the regular ratios. Furthermore the ROE of the traditional ratio is 31.32% with DuPont being 33.10% versus the industry average of 18.75% shows that the firms ROE is very robust. While the firm has some challenges with respect to liquidity and inventory management, as well as debt management it still is doing a good job with respect to its shareholders. However it could be doing a little better for the stockholders, and needs to address some of the above issues mentioned.
The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. Star River has always depended much on debt for its financing and the trend shows this ratio may get higher in future. Star River, with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and
Several advantages to issuing preferred stock include: no dilution of management's interest in corporate growth or in voting power (if non-voting preferred stock is issued), and predictable dividend payments and preferences upon liquidation (for which investors may pay a premium). Although, disadvantages include: a
The return on equity, ROE, is as high as 20.69% (above 15%). It illustrate that the RL Corporation uses the investors’ money pretty effectively. As of return of assets, equals to 13.10%, which reveals how much profit a company earns for every dollar of its assets. Both ROE and ROA for RL Corporation seems really good and they provide a picture that managers are doing a good job of generating return from shareholders’ investments.
The return on equity conveys the profits of the company as a rate of return on the amount of owners' equity. ROE uses average owners equity over the specified time period and net income. Historically a ROE of between 10% and 15% were considered average. Recently higher rates in growth industries have been greater.
Colonel Lilly founded Eli Lily and Company in 1876, because he felt there was a lack of high quality medicine on the market at the time. He also felt the most medicines on the market were ineffective in the curing of ills. In the case “Review Corporate Venture Capital at Eli Lilly and Company”, describes the issues surrounding Eli Lily and Company venture capital arm by showing the struggles the company went through in establishing a corporate venture capital fund. It takes you through the choices that were made keeping in mind the benefits to Eli Lilly and Company as well as keeping the Venture Capital arm separated from the company. This allowed Eli Lilly and Company to benefit from its investments, and kept the