Consider three companies: Mattel, Clorox, and MGM Resorts International. Reflect on the nature of the business of these three companies. You are recommended to also get to the website of these companies as a resource for more information. You might also want to check what the beta of each of these companies is.
Note that you are not asked to provide specific numbers, just 'low debt ratio', 'medium debt ratio' or 'high debt ratio'. Explain your recommendations for each of these three companies. Consider the nature of their business and the riskiness of the company.
- Beta is a measure of systematic risk or market risk. Based on the beta of this particular stock which is almost 1, we can conclude that this stock moves with the market.
- A beta of 1 indicates that the price of the stock will depend on the move with the market. The higher the beta, the riskier the underlying security.
- A beta that is less than 1 means that the stock price will be less volatile than the market. A beta that is greater than 1 means that the stock price will be more volatile than the market. For example, Mattel has a beta of 0.99, it's theoretically 0.1% less volatile than the market.
- I would look at the Sharpe Ratio to see the excess return compared to the riskiness of the stock.
Debt/Equity Ratio 0.48 compared to the industry ratio of 0.66
- Compared to its industry, Mattel’s has lower debt/equity ratio. A low debt ratio is not always a good thing, but it’s not always a bad thing either.
- First, we have to identify how efficient they manage and leverage their debt. We can look at their ROE (Return on Equity), in 2010 their ROE was 26.55%, and Trailing Twelve Month ROE is 26.47%. I think this is an impressive return compared to the risk that this company offers, which we can see from its beta above. Low ...
This solution discusses factors such as beta, debt-to-equity, ROE, stock price and price to earnings, profit margins, and leverage etc. in an analysis of the operations of each business. This solution is 993 words.