Question

Total assets	12,878
Equity Market Value	20,436
Debt book value	3,920
Operating cash flow	666
Cable subscriber base	6
Net income/Total assets	0.14
ROE	33.30%
ROA	13.10%
Total liabilities/Total assets	0.58
Debt to equity	0.74
Total debt/EBITDA	5.1
EBITA interest coverage	3
Bond rating	A-/Baa2
Equity Beta	0.68

Evaluate provided financial performance and use of leverage.

Answer 1

Return on Equity = Profit after Tax / Networth

Higher the ROE better the firm here ROE is 33.30%

it means 33.30% of Company's Networth is the profit

If a company has $100 Networth then the profit will be 33.3$

Return on Assets = 13.10 % Net income/Average total assets

It means 13.10% of Capital employed is the total profit of the company. Higher the ROA higher is the performance

Leverage of the Company

1. Total Debt to Total Assets Ratio

= Total debt/Total Asset

If the total debt to total asset ratio is more than 1. It means the company has more debt than its assets

here it is 0.58 which is good for a company

2. Debt to Equity Ratio

Total liabilities / Total Shareholders Equity

her debt-equity ratio is 0.74 which is good for a company. It means that the company uses less amount as debt compared to its equity. If the debt-equity ratio is greater than 2 it means that the company is running on huge debt, interest expense will increase it may lead to bankruptcy.

3. Debt to EBITDA Ratio

= Debt / EBITDA = 5.1

Debt to EBITDA ratio measuring the amount of income generated and available to pay down debt before covering interest, taxes, depreciation and amortization expenses.

A declining EBITDA Ratio is better than increasing one it implies that the company is paying off its debt and growing earnings

A 5.1 Debt to EBITDA Ratio means the company's debt is 5.1 times more than its earnings. It means if EBITDA is same for all years the company requires 5.1 years to clear all its debt.

4. EBITDA To Interest Coverage Ratio

= EBITDA / Interest expense

here the ratio is 3

It means The earnings of the company is 3 times more than its Interest expenses which are good

EBITDA To Interest Coverage Ratio is used to asses a company's financial durability by examining whether it is at least profitable enough to pay off its interest expenses.

Higher the ratio better the firm is.

So by this analysis, I conclude that the company is a profit making company with moderate use of leverage.

The company is able to pay its debt in the near future and the interest expense is only one by the third of its income.