Please answer the following question based on the Cardinal health care service
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.
One advantage of using debt (or leverage) is that it increases the firm's return on equity (ROE). Does your firm seem to be benefiting from leverage?
Please fill in the blanks with high, low or average: cardinal health care has ___________ leverage, ___________ coverage, a _________ beta and a __________ return on equity. Together these indicate that my firm’s approach to debt is _____________ (too risky, too conservative, or just right).