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Introduction

Las Vegas Sands is a developer of destination properties including world-class gaming, entertainment, accommodation and exhibition facilities. The American Casino and resort company is based in Paradise, Nevada. The company also operates in China and Macau. Las Vegas Sands has a positive momentum going as the firm beat revenue and earnings prospects for all quarters in 2017. The firm has the capability to grow in Macau and the potential for sports betting in the U.S as growth catalysts. The purpose of this paper is to perform a credit analysis on Las Vegas. Also, the paper will include the analysis of the 5C’s of the company (Horowitz, 2018). 

5C’s Analysis

Capacity to repay

It is the most critical of the five factors. Before Las Vegas Sands obtaining the loan, the creditor would want to know how the company intends on paying the loan. To have evidence that LVS has the capacity to repay the loan, they will have a look at the cash flow from the business, time-frame for the repayment, chances for a successful repayment and the payment history for the creditors.

Profitability	2009-12	2010-12	2011-12	2012-12	2013-12	2014-12	2015-12	2016-12	2017-12	TTM
Tax Rate %	—	8.68	10.11	8.76	6.01	6.38	9.01	10.60	—	—
Net Margin %	-11.84	5.95	13.49	13.69	16.75	19.48	16.82	14.64	21.78	21.78
Asset Turnover (Average)	0.24	0.33	0.43	0.50	0.61	0.65	0.54	0.55	0.63	0.63
Return on Assets %	-2.86	1.96	5.87	6.86	10.27	12.60	9.07	8.06	13.64	13.64
Financial Leverage (Average)	3.28	3.54	2.83	3.14	2.96	3.10	3.08	3.31	3.18	3.18
Return on Equity %	-10.39	6.67	18.39	20.44	31.32	38.18	28.03	25.70	44.29	44.29
Return on Invested Capital %	-1.46	4.07	8.89	9.89	14.66	17.75	13.10	11.89	19.41	19.41
Interest Coverage	-0.16	3.79	8.40	8.98	12.59	14.98	10.89	9.23	10.33	10.33

(Horowitz, 2018). 

When looking at the company’s ability to repay their credit, it is very important to look at the profitability of the company. the year 2016 and 2017 witnessed favourable profitability ratios hence increasing the company’s creditworthiness.

Capital

Since the initiation of capital return program in 2012, the company has witnessed increase on recurring annual devoted every year and have returned more than $19.7 billion of capital to shareholders via repurchase and shares. Delivering earnings growth and increasing the return on capital to shareholders is an important factor most lenders analyze. Also, creditors will accept LVS because it has contributed its own assets and taken on personal financial risk to establish a business without inquiring them to commit their funds (Martina, Bottino, Rubino & Cook, 2015).

Collateral

Commonly known as guarantees and they are additional forms of security that a company can provide their lender. LVS has attempted to improve its creditworthiness by pledging its own assets like their building with the agreement that it could be a repayment source in case the company is not able to repay the loan. Such guarantee act as a security for the company’s loan (Friedel, 2014).

Conditions

Lenders look at the intended purpose of the loan. Money borrowed by LVS is majorly used for working capital, inventory or additional equipment. On the other hand, LVS has a stable local and global condition within the company as well as the external factors that influence its stability (Horowitz, 2018). 

Character

It is the general impression that the company makes on the potential investor or lender. LVS has a good reputation with impeccable credentials and references which attracts more investors. LVS has a good working culture especially the interaction between managers and employees, staff taking on their responsibilities, and fulfilling an obligation as a way of creating a stable character.

Other analysis

Capital structure

Net Operating Cash Flow

02B4B6B

	2017	5-year trend
Capital Expenditures	-837.00 M
Free Cash Flow	+3.71 B
Cash Flow Per Share	+5.74	-
Free Cash Flow Per Share	+0.96	-

The stable cash flow indicates the company’s ability to create value for shareholders as well generate positive cash flows.

Risk management

Global risk management at Las Vegas Sands provides strategic and tactical support especially in the annual property, department accounting, vendor management and management of liability insurance renewals. Creditors also look at such factors before awarding loans since the determine the ability of a company to repay (Friedel, 2014).

The Altman Z-Score

The Z score is calculated using the sum of the products in five unique multipliers and a respective financial ratio to each multiplier. The following table represents the Altman Z score for LVS. According to the details in the table, there are minimal chances for liquidity to happen hence the company is creditworthy.

Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
	Factor 1	Factor 1 Value	Factor 2	Factor 2 Value	Value	Multiplier	Z
A	Working Capital	$ 2,385.88	Total Assets	$ 22,724.26	0.1050	1.2	0.1260
B	Retained Earnings	$ 1,713.34	Total Assets	$ 22,724.26	0.0754	1.4	0.1056
C	EBIT	$ 3,394.07	Total Assets	$ 22,724.26	0.1494	3.3	0.4929
D	Market Value of Equity*	$ 60,411.87	Total Liabilities	$ 15,058.77	4.0117	0.6	2.4070
E	Sales	$ 13,769.89	Total Assets	$ 22,724.26	0.6060	1	0.6060
Total							3.737

Credit rating

According to the recent rating by Moody’s, the company upgraded from Ba1 to Ba2. This indicates that the company has improved its chances of repaying their debts as well as accessing more credit (Horowitz, 2018). 

Current strategy

The company claimed that they were the first to introduce an ‘integral resort’ rather than offering simple hotel care or a normal casino. The company offers sumptuous suites that splash meeting rooms, celebs status, intimate lounges and ultra-relaxing spa services (Friedel, 2014).

References

Horowitz, D. (2018). Monaco, Las Vegas and Macau: gaming resorts of the past, present and future (Doctoral dissertation, California State Polytechnic University, Pomona).

Martina, A., Bottino, A., Rubino, I., & Cook, D. (2015). One day at The Sands: Exploring Las Vegas' intangible heritage through virtual reality. International Journal of Heritage in the Digital Era, 4(1), 1-19.

Friedel, C. (2014). Summary of Las Vegas Sands Corp. v. Eighth Jud. Dist. Ct., 130 Nev. Adv. Op. 13.

Appendix

Casino Revenue as Percent of Total Revenue

Because of the focus on the casino aspect of Las Vegas Sands’ business, it is appropriate to isolate how much of the company’s total revenue comes from their casino floor. The following table shows the casino revenue, total revenue, and casino revenue as a percent of total revenue for Las Vegas Sands and the members of their strategic group (United States and Macau).

Company	Casino Revenue (millions): 2013	Total Revenue (millions): 2013	% of Revenue
LVS	$ 11,386.92	$ 13,769.89	82.69%
Wynn	$ 4,490.64	$ 5,620.94	79.89%
MGM	$ 5,875.78	$ 9,809.66	59.90%
SJM	$ 11,214.80	$ 11,304.40	99.21%
Melco	$ 4,941.49	$ 5,087.18	97.14%
Caesars	$ 5,808.80	$ 8,559.70	67.86%
Galaxy	$ 7,971.86	$ 8,516.48	93.61%

LVS makes approximately 83% of their overall

Casino Gross Profit

Gross profit is defined as a company’s revenue less the cost of goods sold. Again, due to the focus on the gambling aspect of LVS’ business, focusing on gross profit from the casinos only seemed prudent. In the following table is casino gross profit data for LVS and its strategic group

Company	2013 Casino Gross Profit (millions)	2011 Casino Gross Profit (millions)	Change
Average	$ 5,426.06
Average (no SJM)	$ 2,914.15
LVS	$ 4,903.20	$ 3,429.12	42.99%
Wynn	$ 1,644.15	$ 1,504.14	9.31%
MGM	$ 2,190.97	$ 1,487.71	47.27%
SJM	$ 19,801.00	$ 5,991.15	230.50%
Melco	$ 1,488.75	$ 980.44	51.85%
Caesars	$ 2,528.30	$ 2,774.70	-8.88%