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August 10, 2011 – Comments (3)

In my column today, I decided to draw on the fact that everyone's talking about the U.S. credit rating downgrade and our government's fiscally irresponsible ways and find the parallel to the mindset that's been a pervasive problem on all levels in the U.S. As much as some stocks are becoming bargains now, let's not forget why a strong balance sheet is another sign of responsible management. Highly indebted companies? Not good bets in the current climate.

3 Comments – Post Your Own

#1) On August 10, 2011 at 5:53 PM, ikkyu2 (99.38) wrote:

I am always happy to see a moderately indebted company retiring old debt and incurring new debt in our current rate environment.

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#2) On August 12, 2011 at 11:39 AM, TMFLomax (29.19) wrote:

Along the same lines:

http://finance.yahoo.com/banking-budgeting/article/113314/bankruptcy-risk-worry-again-wsj?mod=bb-budgeting&sec=topStories&pos=5&asset=&ccode=

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#3) On August 12, 2011 at 1:53 PM, puccini3005 (29.83) wrote:

That was a great column!

In the article referenced in #2 above, it mentions Dynegy, which has long been a puzzle to me.  I admit (to my shame) I owned Dynegy stock when the Blackrock offer was made.  I thought they were overpaying, but I was thrilled.  Then when Ichan and Seneca stepped in saying the offer was too low, I couldn't figure out what was so great about a company with >4B debt and negative cash flows.

Other enigmas to me are these stocks: MIM, AIV, GET (I've got red-thumbs on them that have destroyed my caps score!). All three have high Debt-to-Equity ratios, esp. AIV and GET, which have the big "B" next to their total debt, with triple digit D/E ratios, and negative ROE!  and then GET's PEG ratio is > 4!!  Perhaps there's something I'm missing on these 3?

Now I have a stupid finance 101 question, perhaps you have time to answer.  Let's say I was looking at a balance sheet, most recent quarter; what numbers would I use to get the "capital" portion of debt-to-capital ratio?

Thanks!

 

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