Case AAltria

1. Tests of Profitability

Tests of Liquidity

Tests of Solvency

Market Tests

1. Analysis of stock risks and benefits for Altria After analyzing the financials for Altria, we concluded we would buy stock in this company. When comparing Altria and Lorilards financial ratios, Altria is a more stable investment and shows more profitability and less volatility. The net income income increased from 2009 to 2010 showing a growth in the companys earnings. Altria proves to effectively generate a return on investments to shareholders. The average stockholders equity increased from the previous year as well and compared to the competitor who had a negative Return on Equity. Altria has a significant dividend yield and a 1.88 earnings per share proving to be a sound investment. Although Lorillard has a higher Return on Assets, the company is highly leverage making it high risk investment for shareholders. When investing in a stock it is important to assess the companys future performance which can be determined in the price earnings ratio, in Altrias case the selling price is 13.82 times the EPS in comparison to LORILLARDs price earnings ratio of 1,

Altria it has a good indicator of future growth making it a good investment Effectively generates return to pay the shareholders. ROE, the average stockholders equity increased from 2009 to 2010 and compared to the competitor Lorillard ROEs -14.91 by evaluating profitably ratios significant dividend yield making it a good investment based on the EPS for ALTRIA is much higer than Lorillard paying Although Lorillard has a higher ROA the company is highly leveraged making riskier for investors. ] Net income increased from 2009 and 2010

2. Lending Short Term

General :

Due to undesirable numbers in Liquidity ratios for Altria, lending short term is risky and will require further careful research for more detailed analysis. The liquidity ratios may be undesirable due to Altrias recent rapid growth. It may not have the current cash flow necessary to finance an increasingly large operation. To offset the high risk of short term landing to Altria, it may be useful to propose options such as Asset based lending which is a frequently used method of correcting liquidity issues.

The Current Ratio for Altria is on the low side. It is also lower then Lorillards Current Ratio. Because Current ratio determines company's ability to pay backits short-term liabilities (debtandpayables)with its short-term assets (cash, inventory, receivables), it is important to research Altrias ability to repay short term dept. Alrias ratio is under 1, which suggests that the companywouldbeunable to pay offits obligations if they came due at that point.While thisshows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The Quick Assets Ratio for Altria is considerably lower for Altria then in the industry standard as well as in comparison to Lorillard. This ratio is the most frequently used ratio to test the short term financial stability of the company and ability to pay off liability if needed to be repaid at a current date. A ratio of 1:1 or more is recommended or desired by most creditors, because this serves as an indicator of a company's short-term liquidity.The quick ratiomeasuresa company'sability to meetits short-term obligations withits most liquid assets. The higher the quick ratio,thebetter the position of thecompany. Inferring from the definition above and in combination with the Current Ratio, there is a risk associated with lending money short to Altria.

The Cash Asset ratio compares the dollar amount of highly liquid assets (such as cash and marketable securities) for every one dollar of short-term liabilities. This figure is usedto measure a firm's liquidity or its ability to pay its short-term obligations. Because ratios greater than 1 demonstrate firms ability to cover current debt, and Altrias cash asset ratio is .34 which is significantly lower than that of Lorillard, lending Altria short term is risky, however, with further analyses and assessment higher lending short term at a higher rate may still be reasonable.

Inventory turnover ratio for Altria is 4.26 vs 13.65 for Lorillard. (not finished)

3- Lending long term After examining the leverage ratios it shows that Altria has a high debt to equity ratio of 6.19 %, which indicates that the company is using a high percentage of debt to finance its assets. Which makes it riskier for the bank to lend money, however the tobacco industry despite of the declining consumption continues to project stable income in the long term The historical examination of tobacco shows a declining long- term consumption trend. U.S. cigarette production, exports, and consumption between 1990 and 2007. During that 17-year period, cigarette production decreased by about 34%, exports decreased by about 34%, and consumption dropped by about 31%. The percentage value by year for each category is as followsYearProductionExportsTotal Consumption

709.7164.3525.0

1991694.5179.2510.0

1992718.5205.6500.0

1993661.0195.5485.0

1994725.5220.2486.0

1995746.5231.1487.0

1996754.5243.9487.0

1997719.6217.0480.0

1998679.7201.3465.0

1999606.6151.4435.0

2000594.6148.3430.0

2001562.4133.9425.0

2002532.0127.4415.0

2003499.4121.5400.0

2004493.5118.6388.0

2005489.0113.3376.0

2006484.0119.0372.0

2007468.3102.0364.0

http://www.nationalaglawcenter.org/assets/crs/RL30947.pdf