Educational Programming Video
The Value Line Investment Survey
Program 17: Capital Structure/Current Position
In this session we will continue the discussion of items on a Value Line page. We will begin with the CAPITAL STRUCTURE box in the left hand column.
The first thing to notice is that the box contains a date. That date is the date of the information, which is usually the end of a company's most recent reporting period. The first financial item we show is Total Debt, which includes all Long-term and Short-term debt as well as capitalized lease obligations. (Capitalized leases are long-term leases of fixed assets, such as trucks or airplanes. They are included as a liability on a company's balance sheet.)
Next, we show debt Due in 5 Years, which is the amount of debt a company is currently scheduled to repay in the coming 5 years. Debt repayment schedules are frequently changed during a year, and the numbers can change considerably from one year to the next.
Long-term Debt shows the amount of debt and capitalized leases that are due to be repaid in more than one year. Long-term Interest is the annual interest on the long-term debt.
Interest Coverage shows the number of times annual pretax profits cover annual interest charges. A high coverage ratio indicates that a company is strong financially.
% Of Capital next to Long-term Debt, Preferred Stock, or Common Stock, indicates the percentage each item is of Total Capital. Value Line defines Total Capital as Long-term Debt + Preferred Shareholders' Equity +Common Shareholders' Equity.
Preferred Stock (if any) shows the dollar total of preferred equity outstanding on a company's balance sheet.
Common Stock shows the number of common shares outstanding as of the date at the top of the box, unless there is a note otherwise.
MARKET CAP shows the total dollar value of a company's common shares in the stock market. It is calculated by multiplying the number of common shares outstanding by the current price of the stock.
Large Cap stocks are those with market capitalizations of more than $5 billion.
Mid Cap stocks are those with market capitalizations of between $1 billion and $5 billion.
Small Cap stocks are those with market capitalizations of less than $1 billion.
The box below CAPITAL STRUCTURE is titled CURRENT POSITION. The CURRENT POSITION box shows a company's current assets and current liabilities for each of the past two years and for the current year or the portion of the current year for which financial information is available.
Current Assets include cash assets, receivables, inventory, and any other short-term assets. These are all items that are expected to be turned into cash within one year.
Current Liabilities include accounts payable, short-term debt due, and any other items that are scheduled to be paid within the coming year.
The difference between current assets and current liabilities is termed Working Capital, and it represents the liquid assets available for running the business on a day-to-day basis. Traditionally, textbooks have said that current assets should be twice those of current liabilities. More recently, however, that has changed. Because of bank credit lines and other financial borrowing possibilities, many companies find that they don't need large amounts of working capital. And many larger companies, particularly those with steady revenue streams and strong balance sheets actually operate with negative working capital. When you see working capital that is small or negative, don't necessarily think it is bad. But you may still want to question it.
That is it for now. In the next session, we will discuss the ANNUAL RATES of change data shown on a Value Line page. It provides an easy way to examine a company's past results and compare them with the Value Line analyst's expectation for the next five years. We will also discuss QUARTERLY SALES, QUARTERLY EARNINGS PER SHARE, and QUARTERLY DIVIDENDS PAID and discuss their significance.
Thanks for joining us. Be sure to look at our Web site regularly to keep up with the latest information on stocks and the stock market.
Factual material is obtained from sources believed to be reliable, but the publisher is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. © 2016 Value Line Publishing, Inc. RIGHTS OF REPRODUCTION AND DISTRIBUTION ARE RESERVED TO THE PUBLISHER. The Publisher does not give investment advice or act as an investment adviser. Value Line, Inc., its subsidiaries, its parent corporation and its subsidiaries, and their officers, directors or employees as well as certain investment companies or investment advisory accounts for which Value Line, Inc. acts as investment advisor, may own stocks that are mentioned on this Value Line Web site.