Analysis of Capital Structure of Ihg

5725 WordsJul 2, 201123 Pages
Title Analysis of the Capital Structure of InterContinental Hotel Group (IHG) Company Student Numbers; 307473 307540 307576 308254 A dissertation in report form submitted in partial fulfillment of the requirements for Financial Management II of the Higher Diploma in Events, Hotel and Tourism Management IMI International Hotel Management Institute, Switzerland October 2010 Abstract: This report is illustrated about the capital structure of Inter Continental Hotel Group Company. The IHG Company is a large hotel company with a spectacular number of rooms plus owns a portfolio of well recognized and respected famous brands in over the world. During process of the…show more content…
The calculation of ratio is as following. (www.mysmp.com) The answer of this calculation will indicate how much debt is being used for each 1 unit of the calculation of owners’ equity in total asset of the firm (Coltman, 1992). Although in many circumstances it is more profitable for the firm to have high debt to equity ratio, creditor or lender will find it more risky if a firm has too high debt to equity ratio (Coltman, 1992). 2.2 Return on Equity (ROE) ROE is a ratio that shows how much a firm has earned (net income) for each 1 unit of the calculation of owners’ equity. The calculation of this ratio is done by simply dividing net income by owners’ equity. Higher the ratio means more effectiveness that owners’ equity has in the firm (Coltman, 1992). 2.3 Financial Leverage Financial leverage is the use of debt to finance a company or group’s asset along with equity (Andrew et al, 2007). It is said to be higher ratio of debt to equity will provide more various profitability when earnings on assets changes (www.westga.edu). This means, financial leverage increases an investment’s or project’s return on equity if the project is financed partly with debt. Although debt helps to increase the project’s ROE, however, the variability (risk) that is associated with ROE also increases (Andrew and Schmidgall, 1993). Financial leverage should be

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