B&G Inc

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Institutional Affiliation

Financial Analysis of Nike Inc. Corporation

Background and industry

B&GS Foods Inc. is a publicly incorporated company which offers high-quality branded frozen and shelf stable food and household products across Canada, Puerto Rico, and the United States (Reuters, 2019). It is headquartered at Parsippany, New Jersey, United States. The company has a successful track record over its operational period of 125 years in the food industry. Its diversified product portfolio encompasses of more than 50 brands. Some of the brands include Nabisco involving Brer Rabbit Molasses, Regina Wine Vinegar, the Cream of Wheat, and Vermont Maid Pancake syrup. Its competitors include Bellisio Foods, Lancaster Colony, Southeast Frozen Foods, Faribault Foods and Conagra Brands. The current market capitalization stands at $1,079.59 million and its P/E ratio is 6.63 (Morningstar, 2019).

Financial Leverage

The financial leverage is the extent to which the fixed income securities and the preferred stocks are used in a firm’s capital structure (Robinson et al 2012). The leverage ratios acts a veritable tools to assess the ability of the firm to fulfill its financial obligations. Some of the financial leverage ratios encompasses of debt to asset, debt to equity, and interest coverage ratio.

Debt to asset Ratio

A debt to asset ratio is a leverage ratio that shows the percentage of asset that have been financed with debt (Drake, & Fabozzi, 2012). A high debt to asset ratio indicates a high degree of leverage and high financial risk. This ratio is used by creditors to assess the amount of debt in a certain company, the ability to repay debt, and if loans can be extended to the firm (Drake, & Fabozzi, 2012).The debt to asset ratio of the B&Gs Foods company was 0.62, 0.68, 0.57, 0.62, and 0.54 in the years 2014, 2015, 2016, 2017, and 2018, respectively. Over the five accounting years, there is no particular trend as the ratio fluctuates between 0.54, and 068. The ratio increased from 2014 to 2015, then slightly declined from the years 2015 to 2016 and then slightly increased from 2016 to 2017 and decreased again from 2017 to 2018. Over the fiscal years, the B&GS’ debt to asset ratio is more than 50%, which shows that more than 50% of assets are financed with debt. For instance, in the year 2018, 54% of the assets were financed with debt.

Debt to Equity Ratio

A debt to equity ratio measures the degree to which a firm is able to finance its operations using its financing options; debt financing, and equity financing. Also, it is a liquidity and leverage metric which reveals the capital structure of the company (Drake and Fabozzi). A high debt to equity, usually more than one, indicates that a company is financing its operations using more debt than the equity. A ratio of 1.0 means that the debt and equity are equal, which equivalently indicates 50 percent of debt to equity financing. The B&GS’ debt to equity ratios were 3.04, 3.78, 2.20, 2.52, and 1.82 for the fiscal years 2014, 2015, 2016, 2017, and 2018, respectively. Over the five accounting years, there is no consistent pattern as the ratio fluctuates between 1.82, and 3.78, with the highest ratio in 2015, and the lowest in 2018. Worth noting, all the company’s debt to equity ratios are significantly greater than one which reveals that the BGS’ debt is greater than equity. This is a big concern to creditors and the management as B&GS Company seems to be highly leveraged ,less solvent and may have difficult in fulfilling its long-term financial obligations. A high debt to equity ratio indicates a weaker solvency (Drake, & Fabozzi, 2012)

Interest Coverage

The interest coverage ratio or time interest earned measures how many times a firm’s earnings before interest and taxes (EBIT) is able to cover its interest and lease payments (Drake, & Fabozzi, 2012). If the interest coverage is higher, the more solvent a firm is. Solvency indicates the firm’s ability to pay debt from operating income. The interest coverage of B&GS Company was 3.05, 3.37, 3.47, 2.61, and 1.51 for the years ended 2014, 2015, 2016, 2017, and 2018, respectively. The BGS’ company has a higher coverage ratio which reveals stronger solvency hence this offers a greater assurance to its creditors that it can service its debt from its operating income (Robinson et al 2012).

Evaluating B&GS’ Bond Performance

Two - Bonds Issued by

B&Gs Company issued one of its two corporate bond on 3rd April 2017. This corporate bond offers an annual coupon rate of 5.2500% and its issue number is US05508RAE62 (Market Insider, 2019).The postulated maturity date of this bond is on 4th March, 2025, which depicts that it is 8-year time maturity bond. The number of coupon payments of this corporate bond are 2,0 per year , whereby the coupon start date was on the 1st October, 2017 and the final coupon date will be 31st March , 2025. According the Market Insider (2019), the issue price of BGS’ bond issue price was $100.00, and the expected yield is 5.10%. The reported issue volume 500 million (B+G FOODS INC.(NEW)2025) (Markets Insider, 2019).

The second corporate bond issued by BGS Company is referenced with an issue number US05508WAB19, and with a name B+G FOODS 19/27(Market Insider, 2019). A 550 million of this corporate bond were issued on 26th September, 2019, whereby the reported issue price was $100.00.The maturity date is on 15th March 2027. The coupon rate at of 5.2500% and the expected yield is 5.68% (Market Insider , 2019).The number of coupon payment per year will also be 2,0 per biannual with the initial payment being due 15th March, 2020. The final coupon date is on 14th September, 2027. Notably, both corporate bonds have no floater which means that the coupon rate remains the same regardless of the prevailing economic conditions.

2) Last Price of the Bond if we assume that the Par Value of the Bond is $1,000.

A par value is the amount of the money that issuers approve to pay back the bond’s investors at maturity ( The par value of a bond is critical in determining the magnitude of coupon payments as well as the maturity value. The settlement date for the first corporate bond was on 4/3/2017 with a par value of $1,000.00, issued for redemption value of $100.00, and with a maturity date of 4/1/2025. The associated an annual coupon rate and market yield are 5.2500%, and 5.10%, respectively. From the computation, the corporate bond will be priced at $404.94 annually. It is vague that BGS’s last price of the bond issued on 4/3/2017 is $270.40 (Bond Price Calculator, n.d.).

For the second corporate bond with settlement date is on 9/26/2019, with a 8- year maturity date that falls on 9/15/2027, coupon rate of 5.250 %, and the market yield of 5.68%, its price was $100.00. The bond’s last price would be $396.76 annually (Bond Price Calculator, n.d.)

Semi Annual Coupon/Interest Payments if the Par Value is $1,000.

The par value of a bond is critical in determining the magnitude of coupon payments (Hawawini, & Viallet, 2011). Both the first and the second corporate bond have a coupon rate of 5.2500%. The coupon rate payment is computed by multiplying the par value with the coupon rate; Coupon payment = Par value * coupon rate. Therefore, the coupon payments for each bond is $52.50 (5.25%*$1000).

Current Yield of the Bonds if the Par Value is $1,000.

The current yield of a bond is computed by dividing the annual coupon payment by the bond’s current market value (Hawawini, & Viallet, 2011). To compute the current yield of the first and second B&GS’ corporate, plug in the value of coupon payment and the market value. For the first bond, the market value is $404.94 while that of the second one is $461.17. The current yield of the first corporate bond is 7.71%, ($404.94/ $52.5 =7.71). The current yield of the second corporate bond is 8.78%, ($461.17/ $52.5 =8.78). The yield basically represents the effective interest rate on B&G’s bond. This number can be reflected of the profitability of a bond relative to other bonds in the market like Alphabet Inc.

Analysis of B&Gs Foods Issued Bonds

From my analysis, I would choose the first corporate bond since it has a low interest rate. Intuitively, a low interest rate is inversely related to the bond prices, and as a result, the first bond is considerably higher priced than the second. The lower the bond interest rate, the higher the price, as well as the higher return. In this scenario, the lower yield to maturity rate, the less likely it the bond B&G issued is of high quality. On the other hand, a callable bond is a bond that is redeemable before its maturity. For both bonds, they have a fixed interest rate regardless of the prevailing market conditions. The interest rates will never decline. Markedly, both bonds may are redeemable. The benefits that may be reaped will be due to resurgence of bond prices , but not increased interest rates.

Stock Performance

The stock price of B&Gs Food Company has recently and slightly dropped to a low of $16.87 on December 6, 2019. Its primary competitor, Hormel Food Corporation (NASDAQ:HRL) have a higher stock price with a low of $45.33, and with less fluctuations and as a results the market has exhibited positive sentiments towards Hormel’s growth.

B&G’s Stock Prices

A sustainable growth rate is the highest rate of growth rate that a business organization can sustain to finance its expansion and growth without getting more debt financing or equity financing. It is calculated using the formula; sustainable growth rate (g) = ROE *(1- Dividend payout ratio). The company’s sustainable growth rate increased in from 2016 to 2017, and then significantly dropped in 2018. The high sustainable growth rate in 2017 means that the company grew fast, however, it may have siphoned a lot of cash in the expansion and therefore there was no adequate cash to invest in prospective projects.

2018:19.37%*(1-0.73) =5.23%,

2017: 26.10%*(1-0.57) =11.22%,

2016: 17.60%*(1-1) =0.00%,

Compare the Result with the Current Stock Price.

After further analysis, B&G’s stock can be considered fairly valued. This number of reasons including their P/E ratio, P/B ratio, P/S ratio, beta, ROE, Dividend Payout Ratio, and CAPM

Client Recommendation

B & G Food’s financial and stock performance shows that they have enough strength to ensure entering into long– term investment either in bonds or stock. According to the data the company’s stock performance indicates that B & G Food would be at a low risk if customer decided to invest in current bond. Moreover, interest rate is low thus investors are at lower risk. CAPM and Dividend Payout ratio is at a good percentage showing that when investors invest will get a greater return on their investment. B & G Food financial leverage ratio shows a healthy future and greater confidence in investors. Overall, B&G’s offers an incredibly cheap and profitable investment for any investor.

Recommendation for B & G Food’s management team

B & G Food has to ensure their innovation is strong by investing more fund in to research and development so as to gain a competitive edge in the market. B&G needs to adopt aggressive strategies to steer, spark growth, and to have a strong foot in intensive competitive market and industry. As matter of fact, Hormel Foods Corporation is more attractive to investors than investors, and its market capitalization and revenues are more than five folds that of B&G Foods. Some of the ways that B&G Foods company can increase its efficient and enhance its competitive edge is through increasing P/E ratio, reducing cost of sales, full utilization of affordable debt , increasing interest coverage ratio, lowering debt to equity ratio and increasing the book per share.

Reflection of assignment

References

Robinson,T., Henry,E., Pirie ,W.,& Broihahn,M.A. (2012).International Financial Statement

Analysis( 2 nd ed.). Hoboken, N.J.: John Wiley & Sons Inc.

Drake, P., & Fabozzi, F.(2012). Analysis of financial statements (3rd ed.). Hoboken, N.J.: John

Wiley & Sons Inc.

Hawawini, G., & Viallet C.(2011). Finance for Executives: Managing for Value Creation.

(4th ed.). New York, NY. Cengage Learning