Capital Structure Policies

1538 Words Aug 3rd, 2014 7 Pages
There are many important factors for our company to consider in making decisions relative to capital structure. Some of these factors relate to debt choices and reviewing performance results where volatility plays a role in making the decisions. Deciding what the proper capital structure policies are is vitally important, and directly affects our stockholders. Other considerations relate to the applicability of capital structure theories in making these key decisions, including evidence regarding how our investors may respond.
ROE DuPont Performance Results Return on equity (ROE) is considered one of the most important indicators of a company’s profitability, including an indicator for the potential growth. A company that maintains a high return on equity, while also having lower levels of debt and not needing to incur large capital expenditures, allows the owners of the company to withdraw funds, or reinvest. However, only basing investment decisions on the ROE, does not always provide a full understanding, as two businesses can have the same return on equity, but one business might be a better investment choice. For this reason, we should use the DuPont model to analyze the components of return on equity in order to understand how debt influences performance results (Brigham & Houston, 2011). A comparison of Coke and Pepsi are included below in order to describe how volatility also plays a role in debt choices.

Financial risk is additional risk placed upon our…
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