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Deluxe Corporation

Deluxe Corporation. MBA Financial Management Group # 1 102363009 邱元亨 102363065 蔡博先 102363088 莊皓鈞 102363040 張筱菁 102363089 王奕云. Agenda. Company Background Industrial & Financial Analysis Company Goal Key Industrial Financial Ratios by Rating EBIT interest coverage

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Deluxe Corporation

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  1. DeluxeCorporation MBA Financial Management Group # 1 102363009 邱元亨 102363065 蔡博先 102363088 莊皓鈞 102363040 張筱菁 102363089 王奕云

  2. Agenda • Company Background • Industrial & Financial Analysis • Company Goal • Key Industrial Financial Ratios by Rating • EBIT interest coverage • Long-term debt/ capital (%) • Total debt/capital, incl. short-term debt (%) • CAPM Analysis • Conclusion

  3. Company Background • Focus on check printing industry • Target B2B markets • Spinning off several noncore businesses, including eFunds and iDLX • Share repurchases has a outstanding outcome Temporary Growth!

  4. Deluxe Industry Analysis • Check printing was a highly concentrated and competitive industry • Checks as a payment method are also declining 4% annually The regression of Deluxe’s main business was inevitable.

  5. Financial Analysis • Deluxe had retired all of its long-term debt • Deluxe's revenue had never experienced more than a single-digit percentage change in any of the past 5 years • profit margins had been relatively predictable

  6. The Goal of Deluxe Company • A new debt policy with a financial flexibility to fend off the regression of the core business • To balance the proportion of debt and equity with a more conservative debt policy to pass this life-and-death crisis.

  7. Key Industrial Financial Ratios by Rating I. EBIT interest coverage 2000: (273.4+11.4)/11.4X100=24.98 2001: (297.6+5.6)/5.6X100=54.14 2002(F): 344.8/4X100=86.2 →Compared with the industrial EBIT interest coverage, the data are all above 23.4 which is belongs to AAA.

  8. Key Industrial Financial Ratios by Rating II. Long-term debt/ capital (%) 2000: (100.7+10.2)/ (100.7+10.2+262.9) X100%=29.67% 2001: (1.4+10.1)/ (1.4+10.1+78.7) X100%=12.75% 2002: None, but the case mentioned Deluxe had retired all of its long-term debt earlier in the year. We can infer this ratio of 2002 would lower than 12.75%. →According to rating categories, we can find the rating of Deluxe is between AA to A.

  9. Key Industrial Financial Ratios by Rating III. Total debt/capital, incl. short-term debt (%) 2000: (0+100.7+10.2)/ (0+100.7+10.2+262.9) X100%=29.67% 2001: (150+1.4+10.1)/ (150+1.4+10.1+78.7) X100%=67.24% 2002: None. We have no enough data. →For this part, its rating level have a large range, may be classified to AA (2000) or BB (2001). It’s determined by the ratio of the year.

  10. What ratio do we give to Deluxe? (From Standard & Poor’s key industrial financial ratios perspective) A

  11. CAPM Analysis • According to CAPM equation: Ra=Rf+β(Rm-Rf) • Rf (risk free return)=6.45% (using average yield of 20yr T-bond from 92’-01’) • β(volatility index)=1.03 (using Deluxe Corp’s data collected from 92’-01’)) • Rm(market return rate)=9.72% (using the average annual return rate of NYSE composite from 92’-01’)

  12. CAPM Analysis • Ra=6.45+1.03(9.72-6.45)=9.72% • Findings: Compared this result with “A” rated bond’s cost of equity in Exhibit8 (10.5%), 9.72% sits roughly in the bracket. • This result will be very popular amongst investors seeking for the company’s potential of growth and it somehow reflects the effort of previous spinning-off. • The condensation force of our company is strong and future is prosperous.

  13. What ratio do we give to Deluxe? (From our own perspective) A

  14. Conclusion • The revenue was at historically high in 1998, however, it's net income margin was very low, then the margin starts to improve from 1999, higher than 10%, thus CEO’s strategy is correct. • Due to the market is expected to shirk soon, thus suggest not to issue long term debit, and pay off the high interest rate of debit. • Focus on its core Business, and using its core technology to develop other possibility.

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