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Helmerich & Payne, Inc. (HP), Occidental Petroleum Corporation (OXY): Two Companies That Are Improving Shareholder Equity and Another That Isn’t

And finally

Finally, a company that is not reducing its level of gearing, Philip Morris International Inc. (NYSE:PM). The majority of Philip Morris International Inc. (NYSE:PM)’ debt is used for the buyback of its own stock, which I have discussed the benefits of in detail here. Having said that, the levels of debt that Philip Morris is building up are starting to become worrying and are distorting figures such as gearing and ROE.

Year 2009 2010 2011 2012 % Change
Net Income $6,342 $7,259 $8,591 $8,800 38%
Total Assets $34,552 $35,050 $35,488 $37,670 9%
Total Liabilities $28,836 $31,544 $35,259 $41,146 42%
Total Debt $13,672 $13,370 $14,828 $17,639 29%
Shareholder Equity $5,716 $3,506 $229 -$3,476 -161%
ROE 111% 207% 3752% N/A 3281%
Gearing 239% 381% 6475% N/A 2607%

Figures in millions of $US except for ratios.

Philip Morris International Inc. (NYSE:PM)’ debt binge has all but destroyed shareholder equity, as a result, ROE and gearing figures are not possible to calculate and have become extremely distorted in recent years, (a gearing level of 6475% during 2011 looks ridiculous). While the benefits of borrowing to buy back stock continue to be debated, one thing is for sure — Philip Morris’ debt binge is starting to sway investor opinion as the company’s key ratios become unreliable.


Overall, both Helmerich & Payne, Inc. (NYSE:HP) and Occidental Petroleum Corporation (NYSE:OXY) are working hard to achieve a good return on equity for investors, which is paying off and the companies are building solid balance sheets with which to fund expansion or increase financial stability in times of stress.

On the other hand, Philip Morris’ borrowing is starting to get out of hand and the company’s key ratios are distorted and although the debt maybe easy to finance right now, with low interest rates, when the time comes to refinance, interest rates could have risen, making it more difficult for the company to service its debt.

The article 2 Companies That Are Improving Shareholder Equity and Another That Isn’t originally appeared on and is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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