Determinants of capital structure - Essay Example

Extract of sample
Determinants of capital structure

es statement of financial position, cash flow statement as well as statement of income of many existing and extinct companies based all over the world. Initially, a great deal of effort was made to define the independent and dependent variable required for the purpose of regression analysis. The regression analysis that has been done in this particular study is based upon gearing measures. Thus, in order to conduct this analysis, alternative definitions of gearing have been explained in the following paragraphs.
Non-equity liabilities to total assets: The book value of this gearing ratio is the ratio between the total debt plus trade credit and equivalent to total assets (equation 1). The market value of this gearing measure can be calculated by adjusting the value of the total assets, deducting the book value of equity and adding the market value of equity (equation 2). The equation can be represented as follows:
According to Rajan and Zingales (1995), the gearing measure serves as a proxy for the liquidation value of a company. The authors also argued that the value of this indicator may be significantly inflated, as it may only represent financial transactions, instead of assets.
Debt to Total Assets: This gearing measure is the ratio between the total debts to total assets (equation 3). The market value of this multiple is determined by adjusting the asset, by deducting the book value of equity and adding the market value of equity (equation 4) (Phillips, Libby and Libby, 2011; Fridson and Alvarez, 2011). The equation can be represented as follows:
Debt to Capital: This gearing measure is the ratio between the total debts to capital. The capital in the denominator represents the total debt plus the equity, which includes the preference shares as well (equation 5) (Rose and Hudgins, 2008). The market value of this gearing measure is calculated by adjusting market value of equity, instead of adjusting the book value of equity (equation 6). The equation can be ...Show more

Summary

The financial indicators, which have been used for the purpose of conducting the analysis, contributes significantly towards ensuring the financial stability of a company and helps…
Author : nmuller
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Determinants of capital structure"
with a personal 20% discount.
Grab the best paper

Related Essays

Determinants of Capital Structure of Listed Saudi Arabian Companies
Although the business may be operationally efficient and cost-effective, the wrong capital mix could introduce unnecessary inefficiencies and costs that could undermine the firm’s profitability and success.
50 pages (12500 words) Dissertation
Choices for Capital Structure for Firms Undergoing Merger
The Modigliani – Miller theorem or proposition is regarded as a key element in the development of today’s corporate finance. The bottom line of the Modigliani and Miller theorem is the proposition of irrelevance which argue that the value of a firm is not affected by the type of financial choices preferred by that firm.
17 pages (4250 words) Essay
Analysing the Impact of Capital Structure on the Performance of UK Financial Institutions
Scope and Limitations of the Study 10 Chapter 2: Literature Review and Theory 11 2.1. Introduction 11 2.2. Concept of Capital Structure 11 2.3. Factors influencing the choice of capital structure 13 2.4. Theories of capital structure 13 2.4.1. The Trade-off Theory 13 2.4.2.
62 pages (15500 words) Dissertation
The comparison of capital structure across industry in UK
Abstract The capital structure of an organization has a direct influence either positive or negative on the output i.e., revenues and profits and the business. As there are numerous factors which influence the optimum choice of capital structure for a firm, therefore there cannot be a universal benchmarking of factors which can be considered as determining the capital structure choices of firms.
40 pages (10000 words) Dissertation
Undertake a review of the current literature to identify the key determinants of capital structure since the global financial crisis
It reveals the magnitude, nature along with the distribution on the basis of which financial funds are allocated in a particular organisation. The notion of capital structure signifies the assets and the liabilities of an organisation. In this regard, every organisation possesses a capital structure in accordance with which income along with expenses is determined.
5 pages (1250 words) Literature review
THE EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY: AN ANALYSIS OF LISTED FIRMS IN THAILAND DURING PERIOD 2009-2013.
Without availability of capital, it is not possible for a business to establish itself. The capital raised by an organization is generally used for investing in fixed assets
19 pages (4750 words) Literature review
Literature Review of multinational cost of capital 2233
The cost of retained earnings of a multinational company actually depicts the opportunity cost, the amount which the existing stakeholders would earn when they receive the earnings in form of dividends and also invest the funds
8 pages (2000 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT