Concordia Healthcare Corp. T.CXR.R

I disagree

[fdfd12]

One stock with no debt is better. With its cashflow, they will save it for an acquisition without
borrowing money.

The one with debt, with its cashflow, will pay of its debt.

Therefore, the one with no debt should get a much higher PE.

[sunshine7]

My earlier point was that a company with no debt is likely smaller and therefore has less sales, earnings and cash flow than a company who made a strategic acquisition that is immediately accretive via debt. What you are describing is CXR today and CXR in 3 years, and yes, it will be worth much more then.

[fdfd12]

yes that is what I am talking about. same scenerio but one with no debt. Maybe, and guys I say a GIB maybe,  A stock with no debt with CXR's postion get a multiple of 15-20. One with 1.5B debt gets decreased to 10PE and one with 3.5B debt should only get a PE of 5 or 6 UNTIL they prove they can shove it down. Once they show that, then the multiple starts getting closer to 15-20. I

[Scruggstyle]

fdfd12: I am sorry, but I am afraid that the theory escapes you. I'll give you a hint: Please review the number of shareholders that you expect that you are going to share the net earnings with, under each of your scenarios. This might help to turn the light bulb on.

[Scruggstyle]

You are wrong. The 15X is called the "Multiplier". Mathematically, it is equal to 1 divided by the capitalization rate used in the capitalized earnings approach to valuing equity. The capitalization rate is equal to the Weighted Average Cost of Capital (WACC). As long as the cost of debt (interest rate) is less than the cost of equity (unlevered rate of return demanded by shareholders

[visionaryfool]

Yeah I gotta say FDFD, gotta learn basic finance. There is an optimal debt structure for every company. A company with all equity and no debt will be penalized by the market for not using its balance sheet efficiently. That's why CEO said the company's optimal debt is between 3x to 4x (or was that 4x to 5x). If they go to 2x, then the multiple they get is much lower than optimal debt. The

[fdfd12]

Thank you for your kind compliment but I have finished my degree in Finance.

[notwrong]

This post has been removed in accordance with Community Policy