Major Homebuilders' Backlog and Market Cap to Debt Ratios

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 does 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 be cancelled. Some builders are better than others at converting the backlog into cash.

Comments

[WAKEUP]

Please write an article explaining how ANY liabilities are allowed to be kept off-balance-sheet. I know there is probably some loophole-law involved, but please explain WHY this is allowed, as it amounts to LYING, repeat, LYING about the true financial status of a company. thank you.