The capital structure of Cadbury Schweppes based on its 2006 balance sheet shows that the company uses more financial obligation than equity to finance its operations.
The business’s financial obligation to total investors equity ratio of the company is more than fifty percent, while its financial obligation to equity ratio is at 1. 30. A high financial obligation to equity ratio means that the business relies heavily in debt funding. A high financial obligation to equity ratio does not necessarily imply that the company has poor monetary leverage since there are industries that are capital extensive which requires business to sustain large amounts of financial obligation to finance its operations.
One such industry is the auto market, where a debt to equity ratio of two is still considered appropriate. When it comes to Cadbury Schweppes, the company is engaged in producing sweet, chocolate and drinks. It is a market which is not as capital intensive as the vehicle manufacturing market so its financial obligation to equity ratio possibly too high.
The business has been undergoing changes in its operations throughout the years. It has slowly moved out of its financial investments that do not fall within its core organisation which is confectionery and drink.
While it dealt with a few of its incompatible organisations, it continued to expand its confectionery and drink operations. These acquisitions, particularly those made in the United States can be the factor for its large financial obligation. Financial obligation is used by the business to increase its operations and, as a repercussion, increase its profits.
The company’s efficiency has been significantly growing every year, so it is possible that the business has identified that the cost of expending the operations which is in the kind of interest payments is much lower than the benefits sustained in the form of increase in sales.
Having a big amount of is extremely harmful to the business if it is not able to recover the cost of the financial obligation; this is not the case of Cadbury Schweppes. The dividend yield ratio measures the quantity of earnings received by each share of stock with the cost of such share. The dividend yield ratio necessarily varies over time since the marketplace worth of share changes as it is traded. A contrast of dividend yield ratio with time can be used to determine if the performance of the business is improving, but this ratio ought to not be examined by itself.
It must be analyzed together with other factors such as the market value of the share. A company with a low dividend yield can mean that the company’s share is priced highly by the market and does not necessarily mean that the company is unable to make dividend payments. On the other hand, high dividend yield can mean that the company’s share has a very low market value and not because it is able to give its shareholders large amounts of dividends. The company has a dividend yield of 2. 30% and it share has a market value ranging from 51. 5 to 51. 6.
Based on this figures, it is apparent that its dividend yield is not because of the extremely high or low market value of its share. The price/earnings ratio of the company, on the other hand, is seen by investors as a gauge of how much the market values the company’s share. In this company’s case, it has a price earning of 24. 22. This number is very close to the industry’s average. This means that the company is competitive with other members of the industry and is generally viewed by the investing community as a good investment.
Based on its dividend yield and price/earnings ratio, the company is able to compensate stockholders despite its large debts. This is probably because the earnings of the company is divided by a smaller number of shares than if the company chose to finance its operation by equity rather than debt. The large shareholders of the company are Franklin Resources, Inc. and Legal and General with shares ownership amounting to 4. 01% and 3. 47%.
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