Long Term Analysis Essay, Research Paper
Analysis by a Long Term Creditor
The interest a long term creditor is currently receiving is 5.6%. A long term creditor could receive as much as 22.7% working somewhere else in the same industry. So, currently the industrial average is giving 17.1% more interest than workingat Cameco Corporation, which is quite a big difference.
The risk involved in receiving your interest every year from Cameco Corporation is very high. The number of times interest earned for Cameco Corporation in 1996 was 14.68 times, in 1997 it was earned 9.5 times a year and in 1998 it dropped down to 5.02 times earned a year. Based on this trend in 1999 there could be another drop of interest earned a year. However, 5.02 times interest earned in one year is still a reasonable amount. Therefore the risk with receiving interest in Cameco Corporation is not as high as it seems because earning interest 6 times a year is considered no risk.
The debt ratio in Cameco Corporation in 1996 was 26.7%, in 1997 it was 25.5% and in 1998 it rose to 35.2%. This means that 65% of Cameco Corporation’s assets is the equity ratio. The 35.2% is below the benchmark of 65% and so the company can handle their and should be able to cover it, because the equity ratio is 65%, this provides Cameco Corporation with a margin of protection to the creditor’s against shrinkage of assets. If Cameco Corporation goes bankrupt, the creditors would take 35.2% from the equity ratio and Cameco would still have 65% of equity to cover the long term creditor so this person will get his money back.
Therefore, If I were a long term creditor I would stay with Cameco Corporation. This is because there is no risk involved in the interest earned at 5.02 times a year. Even though the the rate of interest is 17.1% better at other companies, they have a really good margin for protection against the shrinkage of assets because their equity ratio is 65%. So you have a good chance of getting your money back