JXN Equity to debt

Hello GrahamValue,

I have recently been chatting about JXN with a friend who feels that it does meet Graham's equity to debt criteria for financials unlike GrahamValue shows. To me it looks like GrahamValue is right but I asked ChatGPT to evaluate using Grahams criteria and it left me feeling confused. Can you help me understand why GrahamValues interpretation of JXN not passing this criterion is correct? My friend says, “ I’m not sure that sites pulling the correct info. On macro trends and yahoo it’s showing debt/equity as .48 But finviz is showing .29 for LT Debt/Equity.” Thanks in advance, -Drew

ChatGPT says…

IT:“ Using the formula (2 * (Total Assets - Total Liabilities))/Total Liabilities, we can evaluate the company's capital structure as follows:

(2 * (Total Assets - Total Liabilities))/Total Liabilities = (2 * ($375,484 million - $365,090 million))/$365,090 million

= (2 * $10,394 million)/$365,090 million

= $20,788 million/$365,090 million

= 0.0569

The resulting value of 0.0569 indicates that the company has a debt-to-equity ratio of approximately 0.0569. This means that the company has more equity than debt in its capital structure, as the ratio is less than 1. This ratio also suggests that the company is relying more on equity financing rather than debt financing.

It is important to note that the given formula and quote use the term "stock equity" to refer to book value of equity, which is calculated as total assets minus total liabilities. The formula evaluates whether a company's debt exceeds twice the book value of equity, meaning that the company has more equity than debt. In this case, the company's debt-to-equity ratio is less than 1, indicating that the company has more equity than debt in its capital structure.

ME: But it doesn’t have 2x the equity that it does total liabilities

IT: You are correct, I apologize for the error in my previous response. Based on the given formula and quote, the debt of a company should not exceed twice the stock equity at book value. "Stock equity" refers to the book value of equity, which is equal to the total assets minus total liabilities.

Using the information provided, we can calculate the book value of equity as follows:

Book Value of Equity = Total Assets - Total Liabilities
= $375,484 million - $365,090 million
= $10,394 million

According to the quote, the company's debt should not exceed twice the book value of equity, or $10,394 million x 2 = $20,788 million.

However, the company's total debt, which includes both current and long-term debt, is $2,649 million, which is less than $20,788 million. Therefore, the company meets the criteria that its debt should not exceed twice the stock equity at book value.

I apologize for any confusion caused by my earlier response. Thank you for bringing it to my attention.”