Analysis of Solvency Ratios
Solvency ratios also known as long-term debt ratios measure a company ability to meet long-term obligations.
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- Income Statement
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
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Solvency Ratios (Summary)
Reynolds American Inc., solvency ratios
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Debt Ratios | ||||||
| Debt to equity | ||||||
| Debt to capital | ||||||
| Debt to assets | ||||||
| Financial leverage | ||||||
| Coverage Ratios | ||||||
| Interest coverage | ||||||
| Fixed charge coverage | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
- Debt to Equity
- The debt to equity ratio showed a generally fluctuating but declining trend over the periods. Starting at 0.97 in 2012, the ratio slightly increased to 0.99 in 2013 and peaked at 1.12 in 2014. Subsequently, it declined to 0.96 in 2015 and dropped significantly to 0.61 in 2016. This pattern suggests a reduction in reliance on debt relative to equity, particularly in the most recent year.
- Debt to Capital
- The debt to capital ratio followed a trend similar to debt to equity, demonstrating a moderate shift in the company's capital structure. It increased from 0.49 in 2012 to 0.53 in 2014, then decreased to 0.38 by 2016. This decline indicates a lowering proportion of debt in the overall capital, pointing to a more conservative financial stance by the end of the period.
- Debt to Assets
- The debt to assets ratio remained relatively stable at around 0.31 to 0.33 from 2012 to 2015, showing limited variation. In 2016, it decreased noticeably to 0.26. This slight reduction suggests an improvement in asset financing and possibly enhances the company’s financial stability by reducing leverage on assets.
- Financial Leverage
- Financial leverage experienced some volatility but trended downward overall. It declined from 3.15 in 2012 to 2.98 in 2013, then rose sharply to 3.36 in 2014 before steadily decreasing to 2.35 by 2016. The eventual reduction implies a lesser degree of asset financing through debt, aligning with the observed decreases in debt-related ratios.
- Interest Coverage
- Interest coverage ratio improved consistently throughout the period. Beginning at 9.35 in 2012, it rose to 11.58 in 2013, dipped slightly to 8.91 in 2014, then increased significantly to 12.2 in 2015 and 16.48 in 2016. This upward trend indicates an enhanced ability to meet interest obligations from operating earnings, reflecting improved financial health and creditworthiness.
- Fixed Charge Coverage
- Fixed charge coverage followed a similar trajectory to interest coverage. It increased from 8.72 in 2012 to 10.69 in 2013, declined to 8.27 in 2014, and then climbed substantially to 11.71 in 2015 and 15.84 in 2016. The increase suggests a stronger capacity to cover fixed financial charges, highlighting improved operational cash flow and financial stability towards the end of the period.
Debt Ratios
Coverage Ratios
Debt to Equity
Reynolds American Inc., debt to equity calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current maturities of long-term debt | ||||||
| Long-term debt, less current maturities | ||||||
| Total debt | ||||||
| Shareholders’ equity | ||||||
| Solvency Ratio | ||||||
| Debt to equity1 | ||||||
| Benchmarks | ||||||
| Debt to Equity, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Debt to equity = Total debt ÷ Shareholders’ equity
= ÷ =
2 Click competitor name to see calculations.
The financial data reveals significant shifts in the capital structure over the five-year period ending in 2016. Total debt remained relatively stable from 2012 to 2014, oscillating narrowly around the 5,000 million US dollar mark. However, in 2015, there was a notable spike in total debt, increasing sharply to approximately 17,447 million US dollars, before decreasing to 13,165 million US dollars in 2016.
Shareholders' equity displayed a different trajectory. From 2012 to 2014, equity declined gradually, moving from about 5,257 million US dollars to 4,522 million US dollars. Then, in 2015, equity surged dramatically to around 18,252 million US dollars and continued to increase to 21,711 million US dollars in 2016.
The debt to equity ratio, which measures financial leverage, reflects these underlying changes. The ratio fluctuated slightly above and below 1.0 in the first three years, indicating nearly equivalent debt and equity levels. In 2015, the ratio decreased to 0.96, aligning with the increase in equity. By 2016, there was a further decline in leverage to 0.61, suggesting a more conservative capital structure with significantly more equity relative to debt.
Overall, the data indicates a period of considerable financial restructuring starting in 2015, characterized by a substantial increase in both debt and equity. The outcome is a lowered debt to equity ratio, implying a stronger equity base and potentially improved financial stability by the end of 2016.
Debt to Capital
Reynolds American Inc., debt to capital calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current maturities of long-term debt | ||||||
| Long-term debt, less current maturities | ||||||
| Total debt | ||||||
| Shareholders’ equity | ||||||
| Total capital | ||||||
| Solvency Ratio | ||||||
| Debt to capital1 | ||||||
| Benchmarks | ||||||
| Debt to Capital, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Debt to capital = Total debt ÷ Total capital
= ÷ =
2 Click competitor name to see calculations.
- Total Debt
- The total debt remained relatively stable from 2012 through 2014, fluctuating slightly around the 5,000 US$ million mark. However, in 2015, there was a significant increase to 17,447 US$ million, more than tripling the prior levels. Following this peak, the total debt decreased in 2016 to 13,165 US$ million, which, although lower than in 2015, remained substantially higher than the debt levels from 2012 to 2014.
- Total Capital
- Total capital showed a gradual decline from 10,352 US$ million in 2012 to 9,605 US$ million in 2014. In 2015, there was a sharp increase to 35,699 US$ million, paralleling the rise seen in total debt. In 2016, total capital slightly decreased to 34,876 US$ million but remained significantly elevated compared to the earlier years.
- Debt to Capital Ratio
- The debt to capital ratio hovered around 0.49 to 0.53 between 2012 and 2014, indicating a balanced leverage structure during this period. In 2015, the ratio returned to 0.49 despite the sharp increase in both debt and capital, suggesting proportional growth of debt and capital. Notably, in 2016, the ratio declined to 0.38, indicating a relative reduction in reliance on debt financing compared to overall capital.
Debt to Assets
Reynolds American Inc., debt to assets calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current maturities of long-term debt | ||||||
| Long-term debt, less current maturities | ||||||
| Total debt | ||||||
| Total assets | ||||||
| Solvency Ratio | ||||||
| Debt to assets1 | ||||||
| Benchmarks | ||||||
| Debt to Assets, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Debt to assets = Total debt ÷ Total assets
= ÷ =
2 Click competitor name to see calculations.
The financial data reflects notable shifts in the company's capital structure and asset base over the five-year period ending in December 2016.
- Total Debt
- The total debt level remained relatively stable between 2012 and 2014, fluctuating around 5,090 million US dollars. However, a significant increase was observed in 2015, with total debt rising sharply to 17,447 million US dollars. This peak was followed by a reduction in 2016 to 13,165 million US dollars, indicating partial deleveraging after the prior year’s surge.
- Total Assets
- Total assets decreased modestly from 16,557 million US dollars in 2012 to 15,196 million US dollars in 2014. In 2015, assets experienced a dramatic increase to 53,224 million US dollars, maintaining a similar elevated level of 51,095 million US dollars in 2016. This suggests a substantial asset acquisition or consolidation occurred in 2015, with assets stabilizing thereafter at a significantly higher base.
- Debt to Assets Ratio
- The debt to assets ratio indicates the proportion of assets financed through debt. This ratio remained relatively consistent from 2012 through 2015, at approximately 0.31 to 0.33, despite the large increase in both debt and assets in 2015. In 2016, there was a noticeable reduction to 0.26, reflecting a lower leverage level in relation to the asset base, possibly due to the decrease in total debt combined with the still high asset level.
Overall, the company experienced stable debt and asset levels in the initial years, followed by a substantial expansion in total assets and debt in 2015. The subsequent year saw a reduction in debt while maintaining a high asset base, leading to improved leverage ratios. This pattern could be indicative of strategic financing decisions, such as acquisitions or restructuring, impacting the company’s balance sheet profile.
Financial Leverage
Reynolds American Inc., financial leverage calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Total assets | ||||||
| Shareholders’ equity | ||||||
| Solvency Ratio | ||||||
| Financial leverage1 | ||||||
| Benchmarks | ||||||
| Financial Leverage, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Click competitor name to see calculations.
- Total Assets
- The total assets exhibited a slight declining trend from 2012 to 2014, decreasing from $16,557 million to $15,196 million. In 2015, there was a significant increase, with total assets more than tripling to $53,224 million, followed by a slight decrease to $51,095 million in 2016. This abrupt rise in 2015 suggests a major acquisition or liquidity event impacting the asset base.
- Shareholders’ Equity
- Shareholders’ equity displayed a gradual decline between 2012 and 2014, from $5,257 million down to $4,522 million. Similar to total assets, equity surged dramatically in 2015 to $18,252 million, nearly quadrupling from the previous year, then continued to grow in 2016 to $21,711 million. The sharp increase in 2015 indicates a significant capital injection or retained earnings growth, enhancing the equity base considerably.
- Financial Leverage
- The financial leverage ratio fluctuated marginally from 2012 through 2015, ranging between 2.92 and 3.36. The ratio was 3.15 in 2012, slightly decreased in 2013 to 2.98, rose to 3.36 in 2014, and then declined to 2.92 in 2015. In 2016, there was a more notable decline to 2.35, indicating a relative reduction in the use of debt financing compared to shareholders’ equity. This trend towards lower leverage suggests a strategic move to strengthen the balance sheet and reduce financial risk following the substantial increase in assets and equity.
Interest Coverage
Reynolds American Inc., interest coverage calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | ||||||
| Less: Income from discontinued operations, net of tax | ||||||
| Add: Income tax expense | ||||||
| Add: Interest and debt expense | ||||||
| Earnings before interest and tax (EBIT) | ||||||
| Solvency Ratio | ||||||
| Interest coverage1 | ||||||
| Benchmarks | ||||||
| Interest Coverage, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Interest coverage = EBIT ÷ Interest expense
= ÷ =
2 Click competitor name to see calculations.
- Earnings Before Interest and Tax (EBIT)
- The EBIT experienced a notable upward trend over the five-year period. Starting at 2,187 million USD in 2012, it increased significantly to 3,000 million USD in 2013. Although there was a slight decline to 2,548 million USD in 2014, the figure rose substantially in the following years, reaching 6,954 million USD in 2015 and peaking at 10,317 million USD in 2016. This pattern suggests improved operational performance and profitability, particularly in the later years.
- Interest and Debt Expense
- Interest and debt expenses showed a gradual increase throughout the period, moving from 234 million USD in 2012 to 626 million USD in 2016. The expense rose steadily year-over-year, with a notable jump between 2014 and 2015 from 286 million to 570 million USD. This escalation indicates growing financing costs, potentially due to increased borrowing or higher interest rates.
- Interest Coverage Ratio
- The interest coverage ratio, which measures the ability to cover interest expenses with EBIT, remained robust and exhibited an overall positive trend. Beginning at 9.35 in 2012, it improved to 11.58 in 2013 before declining to 8.91 in 2014. Subsequently, the ratio increased considerably to 12.2 in 2015 and further to 16.48 in 2016. This improvement reflects stronger earnings relative to interest obligations, suggesting enhanced financial stability and reduced risk of default.
Fixed Charge Coverage
Reynolds American Inc., fixed charge coverage calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | ||||||
| Less: Income from discontinued operations, net of tax | ||||||
| Add: Income tax expense | ||||||
| Add: Interest and debt expense | ||||||
| Earnings before interest and tax (EBIT) | ||||||
| Add: Rent expense | ||||||
| Earnings before fixed charges and tax | ||||||
| Interest and debt expense | ||||||
| Rent expense | ||||||
| Fixed charges | ||||||
| Solvency Ratio | ||||||
| Fixed charge coverage1 | ||||||
| Benchmarks | ||||||
| Fixed Charge Coverage, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= ÷ =
2 Click competitor name to see calculations.
- Earnings before fixed charges and tax
- There was a noticeable upward trend in earnings before fixed charges and tax over the five-year period. Starting at 2,206 million US dollars in 2012, the figure increased moderately in 2013 to 3,024 million US dollars but then slightly declined in 2014 to 2,573 million US dollars. From 2014 onwards, earnings experienced substantial growth, reaching 6,980 million US dollars in 2015 and peaking at 10,344 million US dollars in 2016. This represents a significant overall increase, more than quadrupling from the initial 2012 value.
- Fixed charges
- Fixed charges showed a steady increase throughout the period. Beginning at 253 million US dollars in 2012, these charges rose gradually each year, reaching 283 million in 2013, 311 million in 2014, and then increasing more markedly to 596 million in 2015 and 653 million in 2016. The rising fixed charges suggest an increase in interest or lease obligations alongside the company's earnings growth.
- Fixed charge coverage ratio
- The fixed charge coverage ratio demonstrated overall improvement, indicating enhanced ability to cover fixed charges with earnings. Starting at 8.72 in 2012, the ratio rose to 10.69 in 2013, dropped to 8.27 in 2014, reflecting the dip in earnings that year, but then increased significantly to 11.71 in 2015 and further to 15.84 in 2016. The high ratio in the latter years implies stronger financial health and improved capacity to meet fixed financial obligations.