Phillips Petroleum is an integrated oil and gas company with headquarters in Bartlesville, Oklahoma, where it was
Question:
During 1992, Phillips was able to strengthen its financial structure dramatically. Its subsidiary Phil-lips Gas Company completed an offering of $ 345 million of Series A 9.32% cumulative preferred stock. As a result of this action and prior years€™ debt reductions, the company lowered its long- term debt- to- capital ratio over the past 5 years from 75 percent to 55 percent. In addition, the firm re-financed over a billion dollars of its debt at reduced rates. A company spokesman said, €œOur debt-to- capital ratio is still on the high side, and we€™ll keep working to bring it down. But the cost of debt is manageable, and we€™re beyond the point where debt overshadows everything else we do.€ 4 Highlights of Phillips€™s financial condition from 1986 to 1992 are found in the accompanying table. These data reflect the company€™s financial restructuring following the downsizing and reorganization of Phillips€™s operations begun in the mid- 1980s.
Phillips€™s managers are currently developing its financial plans for the next 5 years and want to develop a forecast of its financing requirements. As a first approximation, they have asked you to develop a model that can be used to make €œballpark€ estimates of the firm€™s financing needs under the proviso that existing relationships found in the firm€™s financial statements remain the same over the period. Of particular interest is whether Phillips will be able to further reduce its reliance on debt financing. You may assume that Phillips€™s projected sales (in millions) for 1993 through 1997 are as follows: $ 13,000; $ 13,500; $ 14,000; $ 14,500; and $ 15,500.
a. Project net income for 1993 to 1997 using the percent of sales method based on an average of this ratio for 1986 to 1992.
b. Project total assets and current liabilities for 1993 to 1997 using the percent of sales method and your sales projections from part (a).
c. Assuming that common equity increases only as a result of the retention of earnings and holding long- term debt and preferred stock equal to its 1992 balances, project Phillips€™s discretionary financing needs for 1993 to 1997.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
Step by Step Answer:
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty