The Capital Structure box on the Value Line page provides data about a company’s finances, including some things that are not found on the balance sheet but are located in the footnotes of the company’s financial statements.
Starting from the top of the box, just below the date, is information about a company’s debt. Total debt, long-term debt, debt due within five years, and long-term interest expense are shown. (Note that the current portion of long-term debt is not included with long-term debt.) Debt due within five years is provided by each company in the footnotes of its annual report, but is not updated in the interim. Thus, analysts adjust this figure each quarter based on changes in short-term debt and debt due five years later that wasn’t part of the previous calculation. Long-term interest expense is based on the interest due in the next 12 months on the currently outstanding long-term debt, not the long-term interest payments that were made in the previous 12 months.
Just below the debt section, additional information about long-term debt is provided. This includes things such as the amount of capitalized leases, the terms of convertible debt, and the amount of securitized debt. Next, interest coverage is shown. This is earnings before interest and taxes divided by interest expense. For most companies, both the long-term and total interest coverage are shown unless they are identical. (Analysts almost always have to estimate how much of the previous 12 months’ interest expense is from long-term debt because few companies break out that data.) The proportion of long-term debt to total capitalization is provided (except for some industries such as utilities, which show it in the statistical array). Total capitalization is the sum of long-term debt, common equity, and preferred equity. It does not include short-term debt or the current portion of long-term debt.
The next lines are for operating leases (shown as Leases, Uncapitalized) and pension assets and obligations. The operating lease data are for the coming year, not the previous year. The pension data indicate how well funded the company’s pension plan is. Companies are required to disclose this lease and pension data only annually, not quarterly.
Below these lines is the line for preferred stock, if any. Information shown includes the number of shares outstanding, the interest rates, the par value, whether the preferred stock is cumulative, whether it is callable and at what prices, and conversion terms (if applicable). Just as for long-term interest, the preferred dividends figure that is shown is the dividend payments due in the year ahead on the outstanding preferred stock, not the preferred dividend payments from the previous 12 months (although these are sometimes identical).
Below the preferred stock line is the line for common stock. If there is more than one class of common stock, the breakdown between classes is shown. Often, the number of common shares is shown as of a later date than the date of the capital structure box. This is because many companies show it that way on the covers of their 10-K and 10-Q filings with the SEC. Sometimes, the number of shares outstanding can even come from a proxy statement or a prospectus. Having the latest possible date for shares outstanding is especially useful if there was a stock offering since the date of the capital structure box.
The last line of the capital structure box shows the company’s market capitalization. This is simply the product of the recent stock price, as shown at the top of the page, and the number of shares outstanding. We also show the market capitalization category for each company. By Value Line’s definition, a market capitalization under $1 billion is small cap, $1 billion to $4.9 billion is mid-cap, and $5 billion and above is large cap.
Investors can use the information presented in the capital structure box to examine the company’s financial leverage. The amount of debt, especially as a proportion of total capital, is worth noting. Investors should also pay attention to the interest coverage. This is one of the measures that Value Line analysts use when assessing a company’s financial strength, and is also examined by the credit-rating agencies when assigning a rating to a company’s securities.