An industry ratio of debt-to-equity is 0.55, compared with 0.98 in the industry, which is favorable for HP. The ratio of long-term debt to total capitalization confirms what the raw data on the balance sheet says about HP's long-run escalation in debt. This ratio is currently 27.3%, compared with 25.6% in 2009, 16.5% in 2008, 11.5% in 2007 and 6.1% in 2006. This indicates that HP has been increasing its use of debt steadily over the past five years. While its current levels are no cause for alarm, the long-term trend of using debt to expand the company is cause for alarm. HP's long-term solvency is confirmed in the times interest earned, which was 22.7 times for 2010, up from 14 times for 2009.
The conclusion of this assessment is that HP carries no bankruptcy risk for the foreseeable future. It is underperforming the industry on many measures, but some of the world's most successful firms financially are in this industry. HP is solvent and liquid, and while it has suffered somewhat in recent years this is largely because of its emphasis on the corporate customer. The economic downturn has reduced demand from corporate customers and this has had a negative impact on HP's financials. As such, the trend of declining financial metrics is not expected to continue over the long run. The company's beta is 1.03, which again indicates that it is relatively stable. Given its size and corporate customer base, HP's strong correlation to market returns is not surprising.
Material Changes
Hewlett Packard is a relatively stable company. There were no material changes -- as defined by a 20% change -- in any material item on the income statement. On the balance sheet, there were a couple of significant changes. The first was a near sextupling of short-term notes payable. This is not extraordinary, however, as this...
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The leadership personnel of the companies were far more affected by this merger, and there is no evidence that this merger was viewed as anything but a positive move for both companies by these individuals (Coffee 2006; Taft & Musich 2006; Knorr 2006). The cash premium that was paid to Mercury Interactive shareholders and the ongoing increase in price for Hewlett Packard stock following the merger makes it likely
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