Drawing on the financial ratios in case Exhibit 6, how much debt could Deluxe borrow at each rating level? What capitalization ratios would result from the borrowings implied by each rating category?
Exhibit Deluxe Corp. Ten-Year Financial Summary (in U.S.S millions except per share values and mumbers of shares) at tiscal years ended December 31 1992 19931994 1996 19971998 1999 2001 Selected Income Statement Information Net sales Operating expenses Profit from operations Interest expense Net earnings $1,534.4 $1,581.8 $1,747.9 $1,858.0 $1.895.7 SI,919.4 $1.931.8 $1.650.5 $1,262.7 $1,278.4 S7222 S739.5 $797.3 $819.4 S862.4 S806. $805.2 S688.S417 $4211 $812.2 S842.3 $950.6 $1.038.6 $1,033.3 $1,112.71.125.9 S961.6S844.8 $857.2 $15.4 $202.8 S11.3 S141.9$140.9 $10.3 S12.0 S65.5 $9.7 $44.7 $1431 $9.5 $10.8 $87.0 203.0 S161.9$185.9 Common shares, end of year (000s) Common shares repurchased (000s) Common shares issued (000s) 83.797 82,54982,375 82,36482.056 81,32680,48 72.020 72,555 64,102 (48) (11.332) (3,898) 1,255 (2,197) (1.341) (1,191) 1.414)(1.715)(1.833) (9,573) 949 1,167 985 988 2,890 Earnings per sharel Dividend per share S2.42 $1.34 $2.09 S1.65 $2.15 S2.34 S2.64 $2.34 $2.70 $1.46 Sclccted Balance Sheet Information Working capital Net property, plant, & equipment Total assets Long-term debt Common stockholders' equity S14.0$116.6 $294.8 $174.0S149.6 $1,199.6 S1,252.0 $1,256.3 $1,295.1 $1,176.4 S1,148.4 $1,171.5 992.6 S649.5 S537.7 $330.9 $386.9 S224.5 $130.4 $389.0 $401.6 S461.8 $494.2 $446.9S415.0 S340.1 S12.3 S108.1 S131.0 $167.8 S115.5 10.8 S110.9 $11.0 $108.9 S110.0 S106.3 S115.5 $829.8 $801.2 S814.4 $780.4 $712.9 S610.2 $606.6 $417.3 $262.8 $78.6 Book valuc: LT debt/capital Market value: LT debt/capital 15.3% 3.8% 14.9% 3.5% 12.2% 12.0% 12.5% 13.3% 3.9% 3.6% 0.6% Selected Valuation Information (year-end) Deluxe Corp. stock price S&P 500 Composite Index S 46.75 S 36.25 S 26.38 $ 29.00 S 32.75 S 34.50 S 36.56 27.44 S 25.27 S 41.58 418.17 464.30 462.62 576.70700.92 941.64 1,072.32 ,28.9 1364.44 1,104.61 Deluxe Corp. average P/E2 17.60x 19.00x 17.40x 25.90x 20.60x 15.40x 14.30x 12.70x 10.20x Exhibit Deluxe Corp. Ten-Year Financial Summary (in U.S.S millions except per share values and mumbers of shares) at tiscal years ended December 31 1992 19931994 1996 19971998 1999 2001 Selected Income Statement Information Net sales Operating expenses Profit from operations Interest expense Net earnings $1,534.4 $1,581.8 $1,747.9 $1,858.0 $1.895.7 SI,919.4 $1.931.8 $1.650.5 $1,262.7 $1,278.4 S7222 S739.5 $797.3 $819.4 S862.4 S806. $805.2 S688.S417 $4211 $812.2 S842.3 $950.6 $1.038.6 $1,033.3 $1,112.71.125.9 S961.6S844.8 $857.2 $15.4 $202.8 S11.3 S141.9$140.9 $10.3 S12.0 S65.5 $9.7 $44.7 $1431 $9.5 $10.8 $87.0 203.0 S161.9$185.9 Common shares, end of year (000s) Common shares repurchased (000s) Common shares issued (000s) 83.797 82,54982,375 82,36482.056 81,32680,48 72.020 72,555 64,102 (48) (11.332) (3,898) 1,255 (2,197) (1.341) (1,191) 1.414)(1.715)(1.833) (9,573) 949 1,167 985 988 2,890 Earnings per sharel Dividend per share S2.42 $1.34 $2.09 S1.65 $2.15 S2.34 S2.64 $2.34 $2.70 $1.46 Sclccted Balance Sheet Information Working capital Net property, plant, & equipment Total assets Long-term debt Common stockholders' equity S14.0$116.6 $294.8 $174.0S149.6 $1,199.6 S1,252.0 $1,256.3 $1,295.1 $1,176.4 S1,148.4 $1,171.5 992.6 S649.5 S537.7 $330.9 $386.9 S224.5 $130.4 $389.0 $401.6 S461.8 $494.2 $446.9S415.0 S340.1 S12.3 S108.1 S131.0 $167.8 S115.5 10.8 S110.9 $11.0 $108.9 S110.0 S106.3 S115.5 $829.8 $801.2 S814.4 $780.4 $712.9 S610.2 $606.6 $417.3 $262.8 $78.6 Book valuc: LT debt/capital Market value: LT debt/capital 15.3% 3.8% 14.9% 3.5% 12.2% 12.0% 12.5% 13.3% 3.9% 3.6% 0.6% Selected Valuation Information (year-end) Deluxe Corp. stock price S&P 500 Composite Index S 46.75 S 36.25 S 26.38 $ 29.00 S 32.75 S 34.50 S 36.56 27.44 S 25.27 S 41.58 418.17 464.30 462.62 576.70700.92 941.64 1,072.32 ,28.9 1364.44 1,104.61 Deluxe Corp. average P/E2 17.60x 19.00x 17.40x 25.90x 20.60x 15.40x 14.30x 12.70x 10.20x
