Reference no: EM131998027

Is cardinal health care debt usage higher, lower, or similar to that of the industry? Has it been increasing, decreasing or maintaining its debt levels over the past 5 years? What does that suggest about the firm's debt policy? What do you think your firm uses most of its debt for, current assets or fixed assets?

Is cardinal health care credit rating high or low? Explain that rating by comparing its debt level and coverage to the benchmarks. Generally large firms (market capitalization > $5 billion) with interest coverage of at least 9 times and smaller firms with interest coverage of at least 12 times will have AA or AAA ratings. Firms with interest coverage of at least 4 times will usually be considered investment grade. Does it appear that your firm easily afford its debt?

One disadvantage of using debt, other than the possibility of bankruptcy, is that debt adds volatility to a firm's stock returns, which increases the beta. Compare your firm's beta to the industry average beta. Are both your debt-equity ratio and beta either higher or lower than industry average? If not, some other factor (business risk or operating leverage) may have a greater impact on your beta than financial leverage.