Reference no: EM1345028
Considering the following three companies:
i) eBay
ii) The Clorox Company (CLX)
iii) Alaska Air Group, Inc. (NYS: ALK).
Upon reviewing total debt/equity ratios, company betas, profitability ratios, company revenue, assets, and liabilities, and the nature of the operations of the companies including the nature of their customers and products, what would you recommend should be the capital structure (total liabilities or debt and equity proportions) for each of the three above companies?
Include information such as:
- The nature of the business in brief of all three companies.
- Total current assets and long-term assets of all three companies.
- Total current liabilities and long-term liabilities of all three companies.
Revenue of each company:
- Total debt/equity ratios of all three companies.
- Profit margin, return on assets, and return on equity ratios of all three companies.
- Betas of all three companies.
- The riskiness of all three companies in brief (e.g., the higher the beta, the higher the risk).
- The advantages and disadvantages of debt over equity financing.
Part II:
1) Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations.
2) Give your recommendations as to whether or not you consider these ratios to be too small or too large. Should Lowes increase its debt or take steps to pay off its debt?
3) Compute the debt to equity ratios to two other companies in the same industry as Lowes. Which of these three companies has the highest debt to equity ratio, and why do you think it chose to have a relatively high ratio? Which of these three companies has the lowest debt to equity ratio, and why do you think it chose to have a relatively lower ratio?
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