Reference no: EM133116109
This exercise asks you to calculate the WACC for Lincoln Electric (LECO) and Simpson Manufacturing (SSD). Then to compare financial ratios between the two companies and determine which is more leveraged, that is has taken on more debt. We will use the edgar database, a free database that contains all the financial information that a public company files with the SEC:
1. Go to edgar.sec.gov (Securities and Exchange Commission database for all public corporations in the US). Click on Company search, then Company and Person Lookup and enter LECO, the ticker symbol for Lincoln Electric. When LECO's data comes up enter 10-K in the Filing Type search box in the upper left of the view.
2. Select the 2019 10-K document (first one), then select the document at the top of the list. This is LECO's 2019 annual financial statement.
a. From information in the 10-K briefly discuss LECO's business risks (p.3).
b. From the chart (p. 14), discuss LECO's 5 year return performance compared to the S&P 500.
3. From consolidated financial statements (aggregate of all operational divisions, starts at p.F-4): To calculate the WACC: calculate LECO's tax rate (taxes/EBT); use data in the balance sheet to calculate a weight for debt and a weight for equity (for example: could use total liabilities and total equity, or might prefer to use long term debt and paid-in capital). Use data on long term bonds issued in 2016 (p.F-23) to calculate a weighted average interest rate and use this as your cost of debt. For cost of equity use the CAPM model and a risk free rate of 2% and a market premium of 5%. To determine LECO's beta go to Yahoo or Goggle finance, search LECO and from the summary page get the beta coefficient. Finally, calculate WACC for Lincoln Electric.
4. Do steps 1 through 3 for Simpson Manufacturing (SSD).
5. Determine which of the two corporations is leveraged the most (greater proportion of debt); also, from the statistics page in Yahoo or Google Finance determine the ROIC and ROE for both.