UST Case all Essay

Submitted By wenlongtsui
Words: 1209
Pages: 5
Open Document
FIN 5104
Corporate Finance

UST Case

Ken Atavatkul
Yi-Fan Lin
Jingjing Xu

Fall 2013

1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the viewpoint of the bondholder.
(i) Brand name and market position: UST possesses strong brand name and high market share. For UST inc, the company is identified as the leading producer of moist smokeless tobacco products and well known for its conservative debt policy. Superior
(ii) Cash flow generating capacity: UST is a company with a continuous increases in sales, profit, and cash flow. Sales, earnings and cash flow have grown at 10-year CAGR of 9%, 11%, and 12%, respectively. Superior
(iii) Cyclicality of revenues: Medium degree of demand elasticity and its revenue has grown at CAGR 9% for 10 years. Superior
(iv) Product diversification: Low diversification. UST’s tobacco product contributes 96.8% of total revenue. Wine and other only has 3.2%. For tobacco product lines, UST reacted slowly to against its price-valued competitors by promoting new products. Moreover, UST had been criticized recently for a reduction in innovation and tardiness of new product introductions. Poor
(v) Geographic diversification: Only focus on North American market. No immediate opportunity for international expansion. Good
(vi) Asset tangibility: For tobacco industry, companies’ major assets should be equipments, properties and plants. Therefore, for the total asset, UST’s tangible asset should be one of major fractions. Good
(vii) Litigation risk: Unstable. Overall speaking, smokeless tobacco manufacturers have historically faced less exposure to health related lawsuits than cigarette manufacturers. Recently, UST also faced a pending dispute whereby Conwood alleged that UST violated antitrust and advertising law and participated in anti-competitive conduct. Poor
Does it have high business risk? UST’s business risk is low because except product diversification, stable sales cyclicality and low leverage give us the signals of low business risk. However, in terms of litigation risk, UST is easier to face lawsuits or legislative changes which may increase its business risk.
2. Discuss UST’s past financial performance. Is the past performance expected to continue in the future?
Table 1 UST Historical Financial Performance

5-Year CAGR
10-Year CAGR
Net Sales
5%
9%
EBIT
6%
11%
EPS
9%
13%

5-Year Average
10-Year Average
Gross Profit Margin
79.7%
77.3%
Net Margin
32.7%
31.3%
ROE
122.8%
89.1%
Dividend Payout Ratio
57.8%
61.6%
The table above indicates that the gross profit margin, net margin and dividend payout ratio keep steady over past 10 years while average ROE has a big increase. That’s because UST’s net income keeps increase in the past 10 years, at the same time its shareholders’ equity barely increase even decrease a lot during 1994-1996. However, itscompound annual growth rates of Net Sales, EBITand EPSdecline in the past fiveyear compared with those in the past ten years. Thoseslowing-down growth rates raise the doubt that UST may not keep the excellent financial performance in the future.What’s worse, suffering from theincreasingcompetition, UST is losing marketshare in its core operation,the premium smokeless tobacco market. Furthermore, the price value products in the industry has a dramaticincrease in market share, yet UST just entered in and only has a 0.6% market share in 1998. For those reasons, we think if UST doesn’t implement any improvements, it won’t keep thegood performance in the future.
3. (a) Compare UST’s financial performance and capital structure to other tobacco firms.
Table 2 Summary Financial Information for UST and other Tobacco Companies

UST
Phillip
Morris
North
Atlantic
Trading
RJR
Nobisco
Dimon
Standard
Commer.
Univer-sal
Median
(ex UST)
Gross Profit Margin
80.1%
41.7%
65.4%
46.2%
12.3%
9.7%
14.3%
28.0%
Net Margin
32.9%
10.3%
1.1%
3.5%
2.4%
1.8%
3.0%
2.7%
Return on Equity
103.4%
49.3%
NM
8.4%
12.5%
22.5%
Show More

Related Documents: UST Case all Essay

Smoking: Student and International Students Essay

(non-degree seeking), and Veteran Students. This information and these procedures are part of the admissions process for the MA and Certificate programs in Faith & Culture. Please refer to the Application Process section of the website for a list of all basic requirements for application. International Students: 1. International students whose second language is English must submit TOEFL scores with a minimum score of 550 (written), 250 (computer based), 100 (internet based). The student may also…

Words 678 - Pages 3

Pepsi VS Coke Essay

years in this case? Cite evidence from the case. The consumption of Pepsi and Coke increased 3% per year from 1970 to 2000. The growth was due to many factors but the main reason was the introduction of diet and other flavors. The growing economy and pricing strategies. b. Update the profitability....what has happened to Coke and Pepsi since 2006? Use evidence from their annual reports dated 2012. (10 points) Coke and Pepsi has continued to see growth over all. Coke has increased…

Words 577 - Pages 3

Measuring Conditional Cooperation: A Replication Study In Russia

provided by Sergei Zorya, Lena Gerasimenko, Michael Belaev, Jevgenji Maslukov, Alexei Bibikov and Valerie Kowalenko. We also would like to thank the Universities of Agricultural Sciences Brijansk (Kokino), Samara (Ust-Kinel), the Belgorod State Technical Academy of Building Materials, and the All-Russian Distance Institute of Finance and Economics (ARDIFE) in Kursk for supporting us with the necessary infrastructure and Hans Kolb-Wellpappe Ltd. for the donation of cardboard screens used in the experiments…

Words 2418 - Pages 10

HSR Provides Minimal Road Congestion Relief

ON CASE solvency HSR provides minimal highway congestion relief Peterman, Analyst in Transportation Policy for Congressional Research Service, Frittelli, Specialist in transportation policy for CRS, and Mallet, specialist in transportation policy for CRS, 2009 (David Randall, John, William J, 12/8/9, Congressional Research Service, “High Speed Rail (HSR) in the United States“, http://www.fas.org/sgp/crs/misc/R40973.pdf, 7/10/12, CNW) In heavily traveled and congested corridors, proponents contend…

Words 9406 - Pages 38

Health Organization Case Study: Unitedhealth Group Essay

Health Organization Case Study: United Healthcare Many selections of healthcare plans are available for consumers to choose from to match their own personal needs, preferences and budget. The health care system is most often complex, inconsistent and costly. To maintain and improve the business, healthcare organizations are continuously innovative and evolving to meet the demands of consumers. The purpose of this paper is to discuss a case study of UnitedHealthcare Group, what they are about, their…

Words 1258 - Pages 6

Essay on Hunyango Sa Bato

SUBJECT: “Hunyango sa Bato” by Abdon Balde Jr. DATE : April 12, 2008 Summary: The story evolves in the life of a civil engineer and his experiences in the field of construction. He narrates how contractors and engineers from the private and government sectors transact business deals, more often than not, feeding their personal motives. He even enumerates ways on how to delight influential decision makers for future projects. He describes in detail how the sport of golf can get…

Words 1487 - Pages 6

Same Sex Parenting Essay

are hierarchy of positions and impersonality. Hierarchy of positions means that those in a work place who hold a higher rank, think they are better or more valuable than those who are below them. The higher up you are on this ladder means in many cases more benefits. This makes those believe they can treat other workers or patients who are below them with less respect. They maintain a mind set that since they are ‘labeled” as being in higher positions they think they hold more authority and power…

Words 1781 - Pages 8

The Age Of Information Technology

ust as this is an age of great wealth inequality, it is also an age of great inequality of knowledge or, more exactly, factual information. For all its democratic potential, the fact-filled internet has only heightened the pre-Google asymmetry between those, on one side, loyal to Baconian methods of patient, inductive gathering of facts — the ways of the card catalog and the archive, of the analysis and evaluation of empirical data — and those, on the other side, who didn’t need to read Foucault…

Words 2372 - Pages 10

Statistic Practice Question Paper

p roblem are the mi nim i zation of ________. A ) total costs or uncertai nty B) total costs or i nexp erience C ) total costs or total time D ) u ncertaint y or inexp erience E) total tim e or i nex perience Table 9-11 16) 17) A com p any m ust assign m echan ics to each of fo u r jobs. T he tim e in v ol v e d varies accor d ing to i n d i vi d ual abilities. Table 9- 11 sho w s h o w man y m in utes it ta kes each mechanic to perfor m each job. If the op ti m al assign m ents are m a d e…

Words 6162 - Pages 25

The Lions Paw Essay

winter coming together. All day long the ploughmen on their prairie farms had moved to and fro in their wide level fields through the falling snow, which melted as it fell, wetting them to the skin all day, notwithstanding the frequent squalls of snow, the dripping, desolate clouds, and the muck of the furrows, black and tenacious as tar. Under their dripping harness the horses swung to and fro silently with that marvellous uncomplaining patience which marks the horse. All day the wild geese, honking…

Words 5489 - Pages 22