Case Study Of Kano Fashions

The firm has decided to increase the debt finance component portion from 20% to 30% which is a good decision since the interest payments are 100% tax deductible. The appropriate capital structure would be to

Debt is a lower cost source of funds and allows a higher return to the equity investors by leveraging their money. In addition, the company can deduct the interest paid on the debt from their income and thus reduce the tax burden. With an increase of future corporate tax from 30.8% to 40%, it would be beneficial for the firm to deduct interest payments to pay fewer taxes. Debt greatly reduces the role of integrated enterprise cost of capital. Therefore, it can increase earnings per share and its stock value by improving the proportion of corporate debt appropriately, which assumes a crucial role of financial leverage. Enterprises financial leverage of funds has a magnifying affect, when the business uses the liabilities, the effects of financial leverage will show. However, debt is not always excellent, and we should firstly analyze whether the profitability of raising the funds for capital is greater than the interest rate. If it is so the use of debt will substantially increase their

The capital structure decision is important for any business organizations. The capital structure is essential because it maximize returns, and its impact, such a decision has on the firm’s power to deal with its competitive environment. The capital structure of organization is a mixture of different securities….

James Gitanga was not sure about the unusual capital structure of the Company, avoiding the long-term debt. We believe that the long-term capital structure across the industry was pre-determined by the high capital expenditures and steady cash inflows. Thus, issuing long-term debt was more preferable. Besides, by issuing debt they would enjoy the tax shield since interest on long-term debt is tax-deductible.

The company position is strong enough so its better that company should use debt financing instead of equity financing.

Nevertheless, the use of the Optimal Capital Structure (OCS) is the right techniques to be used in order to acquire the right combination of debt and equity that can maximize the

6. Organization development consultant David Nadler was interested in developing a model of how large companies cope with restructuring in a competitive business environment. With a team of consultants, he followed the restructuring process of Xerox Corporation for two years. He interviewed the CEO and the top managers at Xerox. He observed the behavior and analyzed the speeches of the CEO and the top managers. Nadler and his team collated and interpreted the information they had collected, and wrote up a detailed account of Xerox’ restructuring process,

Reengineering differs from reorganizing, downsizing and other concepts of organizational restructuring because reengineering includes much more than reorganizing, downsizing and other named concepts of organizational restructuring. Reengineering is defined as "the systematic redesign of a business's core processes, starting with desired outcomes and establishing the most efficient possible processes to achieve the outcomes."

Using debt is also advantageous to existing owners because of the effect of financial leverage. When companies use debt to provide addition capital for their business operations, equity owners get to keep any extra profits generated by the debt capital, after any interest payments. Given the same amount of equity investments, equity investors have a higher return on equity because of the additional profits provided by the debt capital. As long as using debt doesn’t threaten the financial soundness of a company in times of difficulties, equity owners welcome certain debt uses to help enhance their investment

Restructuring the organization will be considered to be a major reconfiguration of the internal administrative structure that is associated with an intentional management change program. The goal of the restructuring will include results such as productivity improvements, cost reductions, increased shareholder value, and/or a better alignment of the organization with a changing environment. It’s important to recognize that although management views restructuring as a source of order during a turbulent time, their subordinates view restructuring as a source of disorder because it

When analyzing which debt financing option CPK should choose, the weight average cost of capital (WACC) will provide an approximation on how much CPK must earn in order to satisfy the amount financed. The values of WACC for the actual, 10%, 20%, and 30% options can be found in Appendix A. It appears that the higher the financial leverage, the lower the WACC will be. Take for instance if CPK chooses a 30% debt to capital situation, the ROE will be 11.1 % with a 9.2% WACC. In contrast, at the actual value, the ROE is 9% with the WACC being 9.5% and could pose badly for CPK. As long as CPK is comfortable with the high risk of a 30% debt to capital ratio, then it would be the most beneficial in terms of adding economic value to the company, and for the shareholders, while providing a high financial leverage.

In our case, in the beginning, Korres used debt as the main form of financing but at a lower level of 61.9% (€30.7 million out of € 49.5 million) of the company's financial structure, relying more on short term debt rather than long term debt. In 3 years it slowly went to a higher level of financing from debts representing 73.1% (€ 65.7 million out of € 90 million) of the total financial structure. The initial public offering in 2007 had contributed significant equity capital. By the end, long term debt replaced short term debt as the main source of financing. What remained constant is the reliance on debt rather than equity although the proportions within suffered some changes. In only three years, the company was worse off because the total debt increased by almost 12%.

In order to finance through debt, the companies will get the opportunities or may allows you to pay for new buildings, equipment and other some other crucial assets used to cultivate your business before you get or earn the essential finances or funds. However, this can be a huge way to chase an aggressive growth approach, this occurs particularly; if a company has access to get lower interest rates. Intimately related is the benefit of paying off your debt in installments over a period of time. Relative to equity financing, you also benefit by not relinquishing any ownership or control of the business (Bharath, Sunder & Sunder,

The objective of the capital structure is to reduce the cost of capital. Though debt is cheaper than the

The two Novel laureates, Franco Modigliani and Metron Miller (here after called M-M) were the first to present a formal model in 1958 on valuation of capital structure in corporate finance theory and is still the cornerstone of modern corporate finance. MM were the first to take a sharp look at the relationship between Capital Structure and the cost of capital. In their seminal papers (1958, 1963), they states some propositions.