At each debt level, try to estimate what bond rating the UST debt would have and what interest rate that would correspond to. Despite the product introductions, renewed focus on marketing and promotion, UST has been losing market share continuously from Are the costs of financial distress likely to be high or low for UST?
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. However, these risks are relatively low given the strong operational result of UST.
The company does not have any problems with its cash flow.
As the main player in the market, they had the better position to take on and win in the price war. What interest rate do you expect UST to have to pay at these various debt levels? Moreover, it is very risky to invest in cigarettes, which made only 2.
Will a recapitalization issuing debt and buying back equity with the proceeds hamper future dividend payments? What are the costs of debt? However, this might not be the best solution. The US tobacco industry is characterized by declining volumes, legal challenges, marketing restrictions, taxes, discounting and consolidation, and so the long-term view is not so clear.
They are generating their cash flows out of the operations. Two choices were analyzed: UST is threatened by value competitors who cut prices to compete. This can be a negative aspect for the company, since the lawsuits against tobacco industry are mounting and are increasing threat for the company.
Thanks to their premium pricing, they are achieving more than average gross profit margin. Assume that if UST issues debt, it uses the proceeds to buy back equity. It can be expected that litigation and legislation targeting the tobacco manufacturers will continue.
Companies that do not want to become hostile takeover targets might undergo a recapitalization by taking on a very large amount of debt, and issuing substantial dividends to their shareholders this makes the stock riskier, but the high dividends Case study on ust still make them attractive to shareholders.
But still, the company has stable growth, high profits and most likely will not present a problem for the bondholder. A strong brand name can have lots of associations with high quality, revenues, soundness, growth, etc. 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 conclusive than those on cigarettes.
Why is UST Inc. What are the primary business risks associated with UST Inc.? Prepare a pro-forma income statement to analyze whether UST will be able to make interest pay-ments.
Nonetheless, there is no product differentiation. Smaller players are expanding their market share primarily by cutting prices, something that UST ignored. What are the attributes of UST Inc.? Use the data on bond ratings and key financial ratios as a guide.
The existing litigation-related settlement obligations of UST include: To keep things easily tractable, consider only interest coverage in this assignment Start by plotting yields ratings of other firms on their interest coverage ratios Next find out the interest coverage ratio for a given level of debt, for every possible rating assigned to it Compare the resulting combinations of interest coverage and debt yields with ones of the peer firms that were previously plotted, then find the one that matches most closely 4.
But, this is one of the characteristics that can be like two edged sward. At each debt level, estimate the benefits of debt. Evaluate from the viewpoint of credit analyst or bond holder.USTs ROE was an astonishing % and its ROA is equally impressive at % compared to a % median.
Its debt/book capitalization and debt/market capitalization is x and 32x lower than the median respectively. - Case Study: Effective Managerial Leadership The successful implementation of a public policy to solve a social problem will greatly depend on the abilities of a public administrator.
Furthermore, numerous case studies can show examples of how a successful public agency administrator can achieve goals through dedication and. Do you really want to delete this prezi?
Neither you, nor the coeditors you shared it with will be able to recover it again. Delete Cancel. “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.
UST Case Study Essay Sample.
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.
Case Studies Because the Grid isn’t Good Enough for Pharma Pharmaceutical manufacturing is an intolerant business, particularly when it comes to electrical power.Download