On reviewing the Debt/Equity (ttm) ratio of Countrywide, I was astonished to find that it was 7.934, which means that the debt is 7.934 times the company's entire equity or book value. It is said that the company is also doing a share repurchase with $2.6 billion buy back. Yet there has been no evidence of such buy backs on my research yet. Worse yet, the buy backs are not being done with the total cash that the company has but instead through further debt. Does this make sense to anyone? Also, this buy back is being done in "off balance sheet" fashion which means that it is not recognized as a liability in CFC's balance sheet. It is yet another deceitful efforts by CFC to elevate the share prices of the stock. Generally, you want to see a strong company with manageable debt and strong cash balance doing the buy backs because the insiders feel that the current stock price represents a strong value and is undervalued by the markets. But when a company takes on more debt from its astronomical debt levels to play the wallstreet game of "buy backs" to encourage retail investors to buy their stocks, we have to be a little bit skepticle. When you add the alarming rate at which Samboro and Mozilo and other insiders are selling this stock, you have to question whether the insiders have any faith in this company at all.
The total debt for CFC is $113.60 billion dollars. It is not clear if this represents the additional $2.6 billion that the company took on to buy back shares. We will never know because of the off balance nature of recognizing this debt to buy back shares. Something tells me that it isn't reflected.
The total cash that the company has is $52.54 billion dollars. I wonder how much of this cash will be depleted to meet margin requirements as their subprime loans become delinquent? Additionally, as the share prices falter and the insiders continue to sell their stocks, how much of this cash is needed for legal defense and settlements? This also does not take into account of slowing revenues and squeeze on gross margins as tighter lending requirements and decreased demand will have on the company's cash levels and subsequent ability to meet the short term liabilities?
The misleading price to earnings value of 8.13 and price to book value of 1.45 is allowing some to believe that this company is at great valuations right now. But this is due to recent cut in share prices and does not reflect the health of this company. Additionally, the book value per share of this company is currently $24.47 and declining. But given the off balance nature of the way this company recognizes assets and liabilities what truly constitutes the "honest" book value?
None the less, given the recent tribulations of this company, I can expect this company to trade at or below book value in the near future. As soon as the support is broken and further economic news show that in fact housing woes are not relegated to the subprime only I would expect to see this contract further.
The last question is that the company has been paying out dividends at 1.7%. But usually, companies that pay dividends have rising cash levels and slowing growth. I would say that CFC's growth has halted and declining rapidly as are its cash levels. They can only keep up the charade for so long before the inevitable day of reckoning comes.
Yes, the pain will continue. It is just that the company thus far has been good at hiding the truth.
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2 comments:
if cash avialble is $52.4 Bil and debt is $113.6 how is ratio around 7-shouldnt it be 1:2.
otherwise you make a very intresting case of cover-up!!!
The ratio is "Debt to Equity". One component of equity is cash on hand but other components include short term liabilities and losses can affect the cash position. But cash position is not used solely to calculate equity. In essence, he equity will decrease whenever the book value of the business decreases. This can take the form of the following ways:
shares outstanding in the market are repurchased by the business,assets decrease,liabilities increase,losses are realized,dividends are paid.
I have pointed out that country wide is taking on more debt to repurchase shares but that is a double negative affecting share holder equity negatively, at the same time, the company is continuing to pay dividends when it clearly should or could not thus further squeezing shareholder equity. Additionally, CFC will continue to realize losses and squeeze in margins that will affect further share holder equity loss.
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