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Equities and Fixed Income Investments
Finance & Accounting
Pages 13 (3263 words)
Equities and Fixed Income Investments Table of Contents Part 1 3 a 3 b 8 c. 11 d. 12 e 13 Part 2 15 Reference List 18 Part 1 a Whether the company in a position to issue debt securities or should it consider issuing equity instead? In order to find out if Severn Trent is in a position to issue debt securities or should it consider issuing equity is found out by the analysis of gearing ratio, FCFF, FCFE and EBITDA.
While the analysis of the free cash flow will indicate if the company enjoys an unobstructed flow of cash. The analysis of the free cash flow to equity will indicate if the company is in a position to service the equity holders after clearing all the expenses, reinvestment and repayment of debt. The analysis of the EBITDA indicates the cash flow from the operations (Hatten and Ruhland, 2005). The cash flow from the operations will indicate if able to optimize its operational performance. With the increase in the efficiency of the operations the cash flow of the firm will increase. Table 1: Tabulation of different ratios 2013 2012 2011 2010 2009 Gearing ratio 0.95 0.91 0.90 0.90 0.90 EBITDA 492.2 469.8 497.7 507.4 451 FCFE N/A -86.8 -89.9 -376.6 -162.1 FCFF N/A 252,286.60 239,185.37 220,906.19 2,284,070.11 Source: (Severn Trent Annual Report, 2013) Fig 1: Gearing ratio Source: (Severn Trent Annual Report, 2013) The gearing ratio increased considerably in the last 5 years. This indicates that Severn Trent increasingly resorted to debt financing. ...
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