Forum Archive Index - October 2001

["Peter" <pmaiden@xtra.co.nz>]

Phil - you would have to say that SKC leverage their equity to the utmost.

 

With a return on equity of about 30% and a return on capital of about 11% the large level of debt is providing a positive return.

 

They have probably stretched the borrowings as far as they can at the moment and so I would not want to see them borrow much more at the present time.

 

It was intersting that they went to the market with a capital notes issue. As I have said before such raisings have led many companies astray - ie into making investments that have not matched the previous performance of the company.

 

The extra cash seemed to burn a hole in the SKC board's pocket and they couldn't spend it fast enough - ie Force / Canbet etc. Maybe the money was too easily obtained and as such too easy to spend.

 

Better investment decisions seem to be made when spending borrowed money or hard won earnings ( maybe Air New Zealand is an exception).

 

Cheers

 

Peter