FRICTO analysis

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[edit] Fricto

FRICTO is an acronym for a form of financial analysis which can be used to help make financial decisions. [1]

  • Flexibility
    • Does increasing debt restrict the firm for seeking more debt in the future due to high debt levels? Does increasing debt violate loan covenants or result in the potential for loan covenants to be violated with poor performance?
  • Risk
    • Can the company meet debt service (interest and principal) especially when times are tough? How volatile are the company’s earnings and cash flow?
  • Income
    • How do the different financing alternatives impact earnings per share (EPS) and return on equity (ROE)?
  • Control
    • Does issuing equity affect the ownership control of the company?
  • Timing
    • Are the capital markets (debt and equity markets) “friendly”? Are interest rates high? Low? Which direction are interest rates headed? Based on the stock price, is this a good time to issue stock? When will the capital or funds be needed?
  • Other
    • What is the attitude of management and shareholders toward debt? How will the company’s bond rating be affected?

[edit] References

  1. ^ http://www.google.com/url?sa=t&ct=res&cd=1&url=http%3A%2F%2Facme.highpoint.edu%2F~jwehrley%2Fba333%2Fblackboard%2FFall%25202005%2FPhase%2520III%2520of%2520Class%2FFinancial%2520Leverage%2520Capital%2520Structure%2FFRICTO%2520Analysis.doc&ei=GkP-R-qFFormiAHL0cjTCg&usg=AFQjCNF6k8Z-ZNspDUsTKazPVLk2GeEgeg&sig2=siHK2sWENnec5HdNqVtDUA