Thursday, December 6, 2007

Backlog and Market Cap to Debt Ratios for Major Homebuilders

Following up on posts One and Two about homebuilder ratios.

Debt-to-backlog. Having debt that is a higher multiple of backlog (the dollar amount of outstanding orders for homes) is troublesome. Consider that the amount of cash for paying down debt is going to be a fraction of the backlog

Debt-to-market cap. A measure of the amount of financial leverage.

One thing to keep in mind is that the data not consider off-balance sheet debt, so the amount of debt is understated. The understatement is not necessarily equal - certain builders use more joint ventures to control land. Also, certain builders have more contingent liability for their off-balance sheet debt.

Also, significant numbers of orders in the backlogs will probably cancel. Some builders are better than others at converting the backlog into cash.


1131 said...

Please write an article explaining how many liabilities allowed to kept off-balance-sheet. I know there is probably some loophole-law involved, but please explain why it allowed, as it amounts to lying, repeat, lying about the true financial status of a company. Thank you.
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eva said...

My father is in a homebuilder company and their financial status are touching sky. So they also do convert backlog to cash because having higher backlog could be troublesome.
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Unknown said...

Great blog with lots of useful information and excellent commentary! Thanks for sharing.

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