The optimal debt ratio for Aracruz using the normalized operating income is 30%, a shade below it's current debt ratio of 30.82% but the cost of capital at the optimal is almost identical to it's current cost of capital. This indicates that Aracruz is at it's optimal debt ratio. There are two qualifiers we would add to this conclusion. The first is that the volatility in paper and pulp prices will undoubtedly cause big swings in operating income over time, and with it the optimal debt ratio. The second is that as an emerging market company, Aracruz is particularly exposed to political or economic risk in Brazil in particular and Latin America in general. . It is perhaps because of this fear of market crises that Aracruz has a cash balance amounting to more than 7% of the total firm value. In fact, the net debt ratio for Aracruz is only about 23%.

Debt Free Network Marketing

Debt Free Network Marketing

You and I are aware that cash flow is king in network marketing. Just like any other business, if you don’t have cash in hand, your entire business will come to a grinding HALT! Make no mistake about this because in network marketing, if you don’t have the right mindset and you don’t keep a watchful eye on your cash flow… you will become like the rest of the network marketing failures who run into debt!

Get My Free Ebook

Post a comment