Hill Country Snack Foods Co Essay

agglomerate expanse Snack Foods confederacy manufactures, markets, and distributes snack foods and frozen treats throughout the United States. knoll earth is boilers suit well performed connection. Sales, Net Income, ROE and ROA had increased at a steady rate. Company mainly focussed on maximizing the shareholder value by the CEO and other managements managerial school of thought.Currently, cumulation Country uses a risk adverse strategy to choose their business or bemuse. Hill Countrys industry is high competitive but it kept going well with address cleverness and quick reaction to customer requirements. From these reasons, Hill Country has few risks. withal, analyst and experts present that Hill Countrys excess liquidity with zero debt is going to lose benefit and fail to increase the shareholder value. Risk may be hided in the steady companys thoroughly performance. unfinished retirement of CEO is one of risks. ii) Briefly discuss the current corporate cultureHill Country was a well-managed company with decisions which can make shareholder value. CEO and other management insiders also held a significant proportion of companys common livestock. It means that they have responsibility as employee and owner. Company also has strong commitment to efficiency and controlling costs. These are great power to survive in highly competitive markets.Another important of Hill Countrys culture and managerial philosophy was caution and risk aversion. From that reason they choose zero debt financing and fund internally hold Brobdingnagian cash balances. From the discussion of our team members, some of members think that it is too risk aversion position. Only efficiency lead be stuck in near future so they should invest somewhat risky project and raise the debt. The others think that it is unique and fresh and in snack and food industry, it may be good strategy and philosophy like Coca-Colas permanence. iii) How does the stock market evaluate Hill Countrys current situation compared to its peers in the alike industry (base your discussion on the valuation in the stock market) As shown in Exhibit 2, we can easily check the financial status of Hill Country with two competitors.In comparison to Snyders, a company with a little larger sales, and Pepsi, a company with 47x more sales, Hill Country performs well given its size. Hill Country has 3.5 times more NI than Snyders. However market capitalization of Hill Country is 1,412 mil USD which is lower than Snyders 1,517 mil USD. market doesnt think that Hill Country has lower value which expresses future expectation. This could be a matter due to its capital structure and risk aversion strategy. P/E ratio also shows the same judgment. In the part of book value of asset, Hill Countrys ROA is higher than Pepsis ROA. However Hill Countrys ROE is lower than Pepsis because of debt.This is another indication of market evaluation. iv) hash out how much financial risk the company would face at each of the three alternative debt-to-capital ratios presented in chance Exhibit 4(you may discuss based on the financial risk faced by firms with different credit ratings) As the debt-to-capital ratios increases, the possibility of bankruptcy and cost of financial distress increase. In the case of Hill Country Snack Foods, Co., the credit rating will be downgraded1 and interest rate will increase according to the increased level of debt. Interest coverage ratio which measures companys readiness to honor its debt payments also decrease dramatically as quality of debt increase. Impact on net income from changing in EBIT will increase and financing flexibility will get worsen with the increased level of debt. It also can lose chance to time the market if it has more debts as it has little raw sienna to issue new debt.