An Analysis of the Effects of Different Sources of Capital for Astra Holdings

5086 Words Feb 10th, 2011 21 Pages
1 INTRODUCTION

1.1 Topic

The theme is about the analysis of the effects of different sources of capital on investment decisions in Astra Holdings Limited. An examination was carried out on specific components of debt, equity and working capital and the reasons for preferring one financing method to the other. Furthermore, the balance sheet movements of compositions of certain elements relating to debt, equity and to a lesser extent working capital were analysed over a period of three years. The main target of this scrutiny was to expose the effects of the sources of finance when utilised on an investment of the organisation’s choice.

1.2 Context

An insight into the three major research issues within the topic area was taken as
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1.4.2 Objectives

To achieve the project aim, various targets were formulated. These allowed a thorough analysis of the financing structures and effects of sources of capital from different platforms, directly and indirectly. These were to:

a. Identify the most ideal sources of capital from the options available to Zimbabwean companies

b. Asses the impact of the constituent sources of capital on firm’s operating WACC

c. Analyse the levels of returns movement throughout the year against variations in composition of debt and equity finance

d. Evaluate the impact of the major sources of finance on market value of shares and profitability.

e. Search for a link between trends of interest rates and the movements in the desired financing structure.

f. Find reasons behind a company requiring present gearing level.

g. See the nature of projects undertaken and the type of funding applied and uncover the reason why.

h. Scrutinise the immediate alternative sources of capital foregone by the firm and their resultant effects on WACC, returns, taxation and risk if they were put to use, for the research to get a complete picture on the subject and

i. Find other factors or elements that come with the use of a certain source of capital, for instance social aspects.

2 INFORMATION GATHERING

2.1 Sources used and reasons for their use

To minimise limitations, no one research method was exclusively
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