Q1 - Describe the capital structure of CSL, using both the debt ratio and the interest-bearing debt ratio

Q2 - What is CSL's interest coverage ratio? If CSL faces a principal payment equal to $580 million, what is the firm's EBITDA coverage ratio for 2017? (CSL's tax rate is 30.)

Q3 - Suppose that Sigma has decided to issue debt financing and use the proceeds to purchase some of its shares from the open market. What fraction of the firm's 993 million shares does the firm need to repurchase to make its interest-bearing debt ratio equal to that of CSL? If Sigma had carried out the transaction by issuing bonds with an annual interest rate of 8%, what would its earnings per share have been in 2017?

Q4 - Do you think Sigma's proposed change of capital structure makes good financial sense? Why or why not?

Q5 - Refer to the 2020 financial statements for both SIG and CSL and describe their dividend policies.

For the financial year ending 30 June 2017, Sigma Healthcare Ltd (SIG) reported the following sources of financing in its balance sheet. Sigma Healthcare Ltd Balance Sheet (as at 30 June 2017) Financial Structure ($ thousands) Liabilities Current liabilities Accounts payable Short-term/current debt Other current liabilities Total current liabilities Long-term debt Other long-term liabilities Long-term liabilities Shareholder's equity Total liabilities and shareholder's equity $523,770 14 50,823 $574,607 1,061 4,672 $5,688 $538,587 $1,118,882 Moreover, the firm's 2017 income statement reported net profit of $53.5 million with interest expense of $4.3 million. Sigma Healthcare Ltd Income Statement (year ending 30 June 2017) ($ thousands) $80,955 Earnings before interest and tax Interest expense (net) Profit before tax Income tax expense Net profit (4,286) 76,669 (23,163) $53,506 If Sigma's management were considering the possibility of using significant debt financing for the first time, it might look at CSL Ltd (CSL), Australia's largest pharmaceutical company, as a benchmark firm for comparison purposes. CSL used debt financing, as shown on the following balance sheet and income statement. CSL Ltd Balance Sheet (as at 30 June 2017) Financial Structure ($ thousands) $1,155,800 Liabilities Current liabilities Accounts payable (incl. other payables) Short-term/current debt Other current liabilities Total current liabilities Long-term debt Other long-term liabilities Long-term liabilities Total liabilities Shareholder's equity Total liabilities and shareholder's equity 122,500 339,800 $1,618,100 3,852,700 488,100 $4,340,800 $5,958,900 $3,163,800 $9,122,700 CSL Ltd Income Statement (year ending 30 June 2017) ($ thousands) $1,768,900 Earnings before interest and tax Interest expense (net) Profit before tax Income tax expense Net profit (79,100) 1,689,800 (352,400) $1,337,400 For the financial year ending 30 June 2017, Sigma Healthcare Ltd (SIG) reported the following sources of financing in its balance sheet. Sigma Healthcare Ltd Balance Sheet (as at 30 June 2017) Financial Structure ($ thousands) Liabilities Current liabilities Accounts payable Short-term/current debt Other current liabilities Total current liabilities Long-term debt Other long-term liabilities Long-term liabilities Shareholder's equity Total liabilities and shareholder's equity $523,770 14 50,823 $574,607 1,061 4,672 $5,688 $538,587 $1,118,882 Moreover, the firm's 2017 income statement reported net profit of $53.5 million with interest expense of $4.3 million. Sigma Healthcare Ltd Income Statement (year ending 30 June 2017) ($ thousands) $80,955 Earnings before interest and tax Interest expense (net) Profit before tax Income tax expense Net profit (4,286) 76,669 (23,163) $53,506 If Sigma's management were considering the possibility of using significant debt financing for the first time, it might look at CSL Ltd (CSL), Australia's largest pharmaceutical company, as a benchmark firm for comparison purposes. CSL used debt financing, as shown on the following balance sheet and income statement. CSL Ltd Balance Sheet (as at 30 June 2017) Financial Structure ($ thousands) $1,155,800 Liabilities Current liabilities Accounts payable (incl. other payables) Short-term/current debt Other current liabilities Total current liabilities Long-term debt Other long-term liabilities Long-term liabilities Total liabilities Shareholder's equity Total liabilities and shareholder's equity 122,500 339,800 $1,618,100 3,852,700 488,100 $4,340,800 $5,958,900 $3,163,800 $9,122,700 CSL Ltd Income Statement (year ending 30 June 2017) ($ thousands) $1,768,900 Earnings before interest and tax Interest expense (net) Profit before tax Income tax expense Net profit (79,100) 1,689,800 (352,400) $1,337,400