BOND & STOCK PERFORMANCE ANALYSIS

Bonds and Stocks Analysis
Background and industry

B&GS Foods Inc. is a company that offers high-quality branded frozen and shelf-stable food and household products across Canada, Puerto Rico, and the United States (Reuters, 2019). BGS’s headquarters are Parsippany, New Jersey, United States. Some of the brands include Mrs. Dash, Cream of Wheat, and Vermont Maid Pancake syrup. Its competitors include Hormel Foods, The Kraft Heinz Co, and General Mills Inc. 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 fixed income securities and preferred stock are used in a firm’s capital structure (Robinson et al. 2012). The leverage ratios act as authentic tools to assess the ability of the firm to fulfill its financial obligations. Some of the financial leverage ratios encompass debt to assets, debt to equity, and interest coverage ratio.

Fiscal Year

2018

2017

2016

2015

2014

Debt to Asset Ratio

0.54

0.62

0.57

0.68

0.62

Debt to Equity Ratio

1.82

2.52

2.20

3.78

3.04

Interest Coverage

1.51

2.61

3.47

3.37

3.05

Debt to asset Ratio

Debt to asset ratio is a leverage ratio that shows the percentage of assets that have been financed with debt (Drake & Fabozzi,2012). A high debt to asset ratio shows a degree of leverage and high financial risk. Creditors use this to identify the amount of debt in a particular company, the ability of BGS 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, the ratio fluctuates between 0.54 and 068. The ratio increased from 2014 to 2015, slightly declined from the years 2015 to 2016, and then rose from 2016 to 2017 before decreasing 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 2018, 54% of the assets are financed with debt.

Debt to Equity Ratio

The debt to equity ratio measures the degree to which a firm can finance its operations using its financing options, debt financing, and equity financing. A high debt to equity, usually more than one, indicates that a company has been financing its operations using more debt financing than equity financing. A ratio of 1.0 means that the debt and equity, which equivalently indicates 50 percent of debt to equity financing. The B&GS’ debt to equity ratio was 3.04, 3.78, 2.20, 2.52, and 1.82 in the fiscal years 2014, 2015, 2016, 2017, and 2018, respectively. Throughout five years, there are no consistent patterns 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 higher than one, which reveals that the BGS’s liability is higher 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 difficulty in fulfilling its long-term liabilities. A high debt to equity ratio indicates 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) can 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 the 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

1) Two – Bonds Issued by

B&Gs Company issued one of its two corporate bonds on April 3rd, 2017. This corporate offers an annual coupon rate of 5.2500%, and its issue number is US05508RAE62 (Market Insider, 2019). The maturity date of this bond is March 4th, 2025, which depicts that it is an 8-year maturity bond. The number of coupon payments of this corporate bond will be made at 2per year, whereby the coupon start date was on of October 1st, 2017, and the final coupon date will be 31st March 2025. According to 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)The BG’S. Bond was issued on 5/3/2013 with an amount of $5,500 million (USD APPLE INC.DL-NOTES 2013(13/23) (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 September 26th, 2019, whereby the reported issue price was $100.00.The maturity date is March 15th, 2027. The coupon rate at of 5.2500% and the expected yield is 5.68% (Market Insider, 2019). The number of coupon payments per year will also be two twice-yearly, with the initial payment being due March 15th, 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.