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Whether you're walking a tightrope or scribbling in your checkbook, balance is a good thing. And, one of the best ways to evaluate a company is to glance at its balance sheet to see what it owns with what it owes.
The balance sheet is a paragon of simplicity and is made up of three components: assets (the stuff it owns), liabilities (the money it owes), and shareholders' equity (the company's value to its shareholders).
Assets take two forms: short-term (or current) assets and long-term assets. Under short-term, there¿s good ol' hard cash. Then, there¿s something called "cash equivalents," which are assets like short-term bonds that can be sold so quickly, they might as well be cash. There you factor in inventory, which (if you're a reasonably competent business owner) you can sell to customers in return for--you guessed it--cash. (The raw materials a company owns to make that inventory also falls under this category.)
Long-term assets are things that are harder to convert into cash. (Think real estate and equipment.) Long-term assets depreciate, meaning they lose some value over time. Also under the long-term category are what's called intangible assets: things like patents and brands, that are important, but hard to quantify. Accountants earn their stripes figuring out the real overall value of these assets.
Once you know your assets, it's time for liabilities. As with assets, liabilities are separated into short-term or current, and long-term. Current liabilities are what a company owes in that year: Things like payments to employees or accounts payable to suppliers. Long-term liabilities are debts paid over several years.
Shareholders' equity is determined by subtracting the liabilities from the assets. That number represents the value of the company after all its bills are paid.
Obviously, investors should pay close attention to balance sheets. Spikes in the amount of debt carried, or a reduction in shareholders' equity, are usually red flags.
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Monday, July 21, 2008
Fitch Rates Interpublic Group's New Credit Facility 'BB+'; Outlook Positive
Comtex
CHICAGO, Jul 21, 2008 (BUSINESS WIRE) ----Fitch Ratings has assigned a 'BB+' rating to the Interpublic Group of Companies' (IPG) $335 million three year revolving credit facility. The Rating Outlook remains Positive.
Fitch's rates IPG as follows:
--Issuer Default Rating (IDR) 'BB+';
--Enhanced Liquidity Facility (ELF) 'BB+';
--Credit Facility 'BB+';
--Senior unsecured notes (including convertibles) 'BB+';
--Cumulative convertible perpetual preferred stock 'BB-';
Fitch has rated the $335 million credit facility, due in 2011, 'BB+' as this facility is pari pasu with the existing $750 million ELF and other unsecured indebtedness. The ELF is expected to remain in place through its expiration in June 2009. In the past five years IPG has only used bank and ELF capacity for letters of credit (LOC). The new facility will provide $200 million in LOC capacity. The establishment of the credit facility is in line with Fitch's expectations that IPG would be proactive in addressing its backup liquidity position in advance of the ELF expiration.
The credit facility contains three key covenants which provide limited room for deterioration in operating performance. First, the facility includes a minimum Last Twelve Months (LTM) EBITDA of $600 million, which excludes up to $75 million of non-cash impairments. On an LTM basis, this covenant is relatively tight (Fitch estimates that all else equal, a 15% decline in EBITDA could position the company to violate the covenant), however Fitch expects further growth in EBITDA through 2008 and 2009 from cost rationalization and operating leverage even amid a weakening economy. The second covenant is a maximum total debt to LTM EBITDA of 3.5times (x) in 2008, stepping down to 3.25x in 2009 and to 3.0x in 2010. Based on Fitch calculations, leverage for the last twelve months ended March 31, 2008 was 3.25x. The company should have the flexibility to meet the step downs through EBITDA growth and some modest debt repayment. The third covenant is minimum LTM EBITDA to interest (as defined) coverage of 4.5x. Fitch notes the ratio is calculated on a net basis and includes preferred dividends. Fitch's current estimate (which may vary slightly from the covenant definition) is approximately 4.8x, also providing limited room for deterioration. The facility also allows for a restricted payments basket of $600 million that can be used for capital expenditures, cash acquisitions, share repurchases and dividends on common stock (with certain exceptions and restrictions). If leverage is below 2.75x the company has the ability to roll $200 million of the unused balance to the subsequent year.
As of March 31, 2008, IPG's liquidity position is supported by $1.5 billion in cash and equivalents. Net of $223 million in LOC, the company had approximately $527 million available under its $750 million ELF. Near-term maturities include $250 million notes due November 2009, and the ELF facility, which expires in June 2009.
Separately, Fitch also reiterates that while IPG's 2008 goals of peer level organic growth (which translates roughly to mid-single digits) and operating margin above 8.5% could be attainable, we recognize that there could be some slowdown in client spending in the current economic environment. Taking on low-margin business or cutting staff costs imprudently to meet growth or margin targets may not be best for the longer term health of the company. Fitch is satisfied with the trajectory of progress even if IPG were to fall short of meeting its 2008 goals. The prospect of an economic downturn is factored into our current rating and outlook.
For further information, see Fitch's report dated May 2, 2008, available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
SOURCE: Fitch Ratings
Fitch Ratings Mike Simonton, CFA, 312-368-3138, Chicago Rolando Larrondo, 212-908-9189, New York or Media Relations: Brian Bertsch, 212-908-0549, New York
Copyright Business Wire 2008 ********************************************************************** As of Thursday, 07-17-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated a DOWNTREND on 06-24-2008 for IPG @ $9.07. For more information on SmarTrend, contact your market data provider or go to www.mysmartrend.com SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.
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