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Week5Discussion2ClassmateResponse

Week 5 – Discussion Forum 2Guided Response:Review the posts from your classmates and respond to at least two. Compare and contrast the points you and your classmates made regarding the impact of time value of money on capital investment decisions. Each response should have a minimum of 100 words.There are two of my classmate’s discussion that is on this document. I need to respond to each one. Kyle Jablonski and Lisa James Kyle JablonskiTuesdayMay 5 at 5:58pmManage Discussion EntryJohn Deere shows a debt to equity ratio of above 2 for the last 10 years. In the most recent, in 2016 and 2017, John Deere showed a debt to equity ratio above 3. With the most reports, John Deere demonstrated a long term debt of $30.48B and shareholders’ equity of $11.93B.The debt to equity ratio is important to know for the company and investors to understand how much risk a company is carrying. According to Investopedia (2019), “The optimal D/T ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity” (para. 7-8). Companies with good debt to equity ratios will be perceived as a more stable investment. If companies carry too much debt, investors may see the company as a riskier investment. With companies attempting to raise capital, especially if the companies are competing companies, investors may be more apt to go with a more stable investment.In regards to John Deere, they have been carrying a good debt to equity ratio and at some points, some may consider them to have a too high of a ratio when it was in the 3’s. Investors may look at a company with a ratio in the 3’s as not capitalizing on leveraging opportunities and maybe perceived as mismanaged funds and being too conservative with their capital.References:Block, S. B., Hirt, G. A., & Danielson, B. R. (2019).Foundations of financial management(17th ed.). Retrieved fromhttps://www.vitalsource.com/(Links to an external site.)Investopedia. (2019). What Is Considered a Good Net Debt-to-Equity Ratio. Retrieved from https://www.investopedia.com/ask/answers/040915/what-considered-good-net-debttoequity-ratio.aspLisa JamesYesterdayMay 6 at 5:22pmManage Discussion EntryA company’s debt to income ratio can be calculated by dividing its total liabilities by its shareholder’s equity (Hayes, 2020). This can be used to better understand a company’s financial position and whether they are financing their projects through accruing debt or through their own funds. Additionally, it shows whether a business can sustain during an economic downturn on its shareholder’s equity (Hayes, 2020).In reviewing John Deere’s Quarter 2 financial statement, they have a liabilities total of $60,791.3 million. The major increases from April 2018 were in short-term borrowing and long-term borrowings. This shows that the company is still actively borrowing money from quarter to quarter and could mean either they are taking on additional debt to meet their financial obligations or they feel they can take on the extra debt to increase production or to benefit the business. Both accounts payable and deferred income taxes saw a decrease. In regard to equity, John Deere saw an increase in shareholder’s equity from $11,287.8 million in October 2018 to $11,919.5 million in April 2019. By comparison to the company’s liabilities, this is a significant difference.In calculating John Deere’s debt to equity ratio, the company currently sits at a 5.1. By comparison, the debt to income ratio in April 2018 sat at 5.7. Though the ratio is trending down, it still sits at a fairly high rate for the company and could be considered unfavorable for John Deere. It is important for money managers to track this over time to see if the company is taking on too much debt or if they have the ability to take on more, for example, if the debt to equity ratio is low. As discussed in week four, corporate debt can be a good thing if it is used to grow the company, eventually increase profits, and not impact its abilities to meet its day to day obligationsResourcesBlock, S. B., Hirt, G. A., & Danielson, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com/Hayes, A. (2020, April 27). Debt-To-Equity Ratio – D/E. Retrieved May 6, 2020, from https://www.investopedia.com/terms/d/debtequityratio.aspJohn Deere. (n.d.). Investor relations (Links to an external site.). Retrieved from https://investor.deere.com

Week5Discussion2ClassmateResponse