Analysis And Notation Of A Companies ' Actualized Capital Structure And Dividend Policies

Professor Thomas Piper prepared the original version of this note, “Assessing a Firm’s Future Financial Health,” HBS No. 201-077, which is being

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (Eds.). (2011). Essentials of corporate finance (7th ed., Rev.). New York, NY: McGraw-Hill Irwin.

Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

Up until 2000 capital structure policy at Diageo was conservative, maintaining quite a high the [book] equity-to-assets ratio inherited from its predecessors:

Parrino, R., Kidwell, D.S., & Bates, T. W. (2012). Fundamentals of Corporate Finance (2nd ed).

In July 2002, an investment banker advising Deluxe Corporation must prepare recommendations for the company’s board of directors regarding the firm’s financial policy. Some special considerations are the mix of debt and equity, maintenance of financial flexibility, and the preservation of an investment-grade bond rating. Complicating the assessment are low growth and technological obsolescence in the firm’s core business. The purpose is to recommend an appropriate financial policy for the firm and, in support of that recommendation, to show the impact on the firm’s cost of capital, financial flexibility (i.e., unused debt capacity), bond rating, and other considerations.

Generally, firms can choose among various capital structures in order to maximize overall market value of the company. It is proposed however, that

The purpose of the report is to understand the capital structure of the chosen company on the basis of the financial statements of the company which includes the income statement, balance sheet and the cash flow statement of the company and do the capital analysis of the company as well to find out the advantages and disadvantages in working capital of the company and suggest company logical and useful ways for growing their economy.

As much as market cap measures to what’s related to the company’s equity value, a firm’s decision based on its capital structure estimates more significantly to how the value of that company is allocated not only for the return on equity but accounting for debt as well. Most economists would refer to capital structure as the mix of a company’s long-term debt, the current portion of it, and of common and preferred stock. Furthermore, large tech-companies today have been taking advantage of capital structure optimizations as it is placed shoulder to shoulder to increasing return on equity thus lowering weighted average costs of capital for long-term investment. In other words, it is how a corporate manager should base his/her decisions on financing the company’s assets and operations through various growth prospects and forecast estimates. We will begin to further evaluate the composition of Google’s capital structure by focusing on the company’s key statistics and research data from the selected top online providers of financial statements, including Google!

According to GM 's bankruptcy filing, the company has assets of $82.3 billion, and liabilities of $172.8 billion. That would make GM the fourth largest U.S. bankruptcy on record, according to Bankruptcydata.com, just behind the 2002 bankruptcy of telecom WorldCom.

There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than external financing which is due to adverse selection, asymmetry of information, and agency costs (Frank & Goyal, 2003). The trade-off theory comes from the pecking order theory it is an unintentional outcome of companies following the pecking-order theory. This explains that firms strive to achieve an

General Motors Company, one of the world’s largest automakers, estimated in 1908. With its global headquarters in Detroit, Michigan, USA.GM employs 209,000 people in every major region of the world and does business in more than 120 countries. GM and its strategic partners produce cars and trucks in 31 countries, and sell and service these vehicles through the following brands:  Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Isuzu, Jiefang, Opel, Vauxhall and Wuling. (Elizabeth, GM, 2009). GM was the largest automaker for 77 consecutive years from 1931 through 2007. It is longer than any other company in the world. In 2008, it was surpassed by Toyota (Elizabeth, GM, 2009).

The purpose of this assignment is to study the finance sources available to a company. Here according to the assignment requirement, we have to select a British public company to study the available sources of finance from where the firm collects its capital requirement. Following the guidelines we have to analyze various sources with their potentiality and then we make viable analysis of Cash and sales budget. Here some salient financial ratios are employed for the purpose of analyzing the financial statement of the company.

This section starts with the theory of irrelevancy of capital structure. Following subsections give the overview of theories that suggest that the capital