StudentShare solutions
Triangle menu

Capital structure and payout policy - Term Paper Example

Not dowloaded yet

Extract of sample
Capital structure and payout policy

Introduction Background Starbucks Corporation is an international company that deals with coffee products, with its headquarters based in Seattle Washington, America. During its commencement in 1971, the company was a retailer and a local coffee roaster; but it has since stretched out swiftly. It has Italian-style coffeehouse chain and it is the world’s largest coffeehouse company, with presence in more than 60 countries and more than 20,000 stores (Starbucks Corporation 2011 3). It deals with coffee beans, salads, hot and cold drinks, hot and cold sandwiches, snacks, mugs and tumblers, and sweet pastries. In addition, Starbucks distributes some of its brand through grocery stores, including coffee and ice cream. Its other products include markets films, music, and books through the Hear Music and the Starbucks Entertainment division. Scores of the company’s products are either location specific or seasonal. Starbuck’s most remarkable expansion, when it used to open new stores days on end, was in the 1990s till 2000s. The company started establishing oversees stores in 1990s; and currently, roughly third of its stores are oversees (Starbucks 2). Identification of problem Starbucks mainly obtain its capital from equity and debt sources. However, the company must struggle to strike a good balance between equity and debt; because, if it uses too much debt, then it may be obligated to pay too much interest and subject it to the risk of bankruptcy. Furthermore, such a scenario could limit its payout capability, hence keeping away investors, which again limits its shareholding capability. Therefore, it is important to analyze the company’s capital structure, as it plays a crucial role in regards to its dividend payout, risk of bankruptcy among other issues. Analysis of issues Capital structure means the manner in which a particular company combines its sources of capital, which are used to finance its long-term assets, including debt and equity. Gearing or leverages is used to measure the proportion of the company’s debt capital. However, the company’s capital structure is affected by a number of factors, and the optimal financing mix should be its target. Difficulty, however, arises, in trying to establish the exact optimal capital structure, since this process is not a science. In order for Starbuck to establish its optimal capital structure, it has to give consideration to all the factors that are believed to play some crucial role in establishing an optimal mix. In addition, it is important to consider the fact that a trade-off between return and risk has a strong impact on the capital structure. In other words, this means that excessive debt will increase the company’s earnings risk, though this will lead to higher potential returns. Furthermore, if the company maintains high debt capital, the stock price will decline due to the higher risk related to high level of debts. On the other hand, the stock becomes more attractive to the investors, if it has a high potential of returns, which will again send the stock’s prices upwards. As such, the optimal capital structure for Starbuck is the one that establishes a balance between return and risk, hence helping attain its overall goal of maximizing the prices of its stock. It is, therefore, very crucial for the management of Starbuck to ensure it maintains the lowest cost of capital and at the same time maximizes the shareholder’s wealth. Capital structure i ...Show more

Summary

Executive summary This report is about the capital structure and payout policy of Starbucks Corporation, an international company that deals with coffee products. The report shows the considerations that the company’s management should make in order to establish the optimal capital structure…
Author : giles95
Capital structure and payout policy essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the term paper on your topic
"Capital structure and payout policy"
with a personal 20% discount.
Grab the best paper

Related Essays

Capital Punishment
The study reflects the insignificance of Capital punishment in curbing the rate of crime conducted. The multi facet reasons behind the offenders conducting such crimes should be necessarily studied before confirming the judgment. The societal responsibility in breeding the adolescence and their eventual turning up into criminals cannot be bypassed.
14 pages (3500 words) Term Paper
The strategies to maintain the competitive position in the market place for Massachusetts Mutual Life Insurance Company
Income Of The Business 7 Rank Of The Company 7 2.Customers of the Business 8 3. Goods and Services 8 4. Methods for Quality Control 8 5. Competitors 9 6. Problems Facing The Firm 9 B.Organization 9 1. Organization of the firm 9 2.Current Key Executives And Directors 10 3.
10 pages (2500 words) Term Paper
Prison Culture and structure
A criminal act is a social disease in all its varied forms that sabotages the security of all individuals (The Lifers Public Safety Steering Committee of the State Correctional Institutions, 2004). Crime in any form is an aspect that drives disorder and disorganization in a particular society because of the challenges and dangers it present to people.
10 pages (2500 words) Term Paper
Financial Analysis of Capital Structure
Both forms of capitals have their advantages and disadvantages. It is the corporation’s and management’s responsibility to find the optimum capital structure in terms of risk and reward primarily for the operating strategy and maximizing of total shareholder returns.
5 pages (1250 words) Term Paper
Organizational Structure
Scott defines organizational structure as “the set of features that arises as a result of the efforts within the organization to differentiate the labor; and coordinate and control the work” (as cited in Johnson, 1995, p.11). Evidently, organizational structure can greatly influence the way an organization operates and its market success.
5 pages (1250 words) Term Paper
Capital budget purchase
It differs with operating budget whose main objective is to cater for the operating expenses of the organization such as payment of employee salaries which is recurring and happens weekly, fortnightly or monthly (Caren, 2013). As the manager for the surgery department in our hospital, I decided to go for the latest Electronic Health Record after a thorough research that gave me many priorities.
4 pages (1000 words) Term Paper
Capital Punishment
This essay attempts to describe the arguments of the author behind the assertion that capital punishment has a greater deterrent effect on the commission of homicide compared to long imprisonment among potential criminals. This will also provide evidence against capital punishment based on economic, legal, and moral grounds.
3 pages (750 words) Term Paper
Neo-Human Capital Theory
It is in organisations and businesses are important and essential asset who contribute to development and growth, in a similar way as physical assets such as machines and money.There are mainly six types of Neo-capital drivers. E.g. 1. Structural Capital 2. Intellectual
1 pages (250 words) Term Paper
Organizational structure and leaderships
The different formal organizational structures include ad-hoc, matrix, service line, flat, or a combination of all. This paper focuses on the organizational structure in my workplace. My organizational functions under a flat organizational structure. This means
2 pages (500 words) Term Paper
Capital Budget Model
Capital budgeting is important for several reasons. First, when making the decision to procure assets, managers are required to forecast the revenue of the assets over their lifetime. Second, provided with the duration of the organization’s projects, capital budgeting decisions eventually define the organization’s strategic plan.
10 pages (2500 words) Term Paper
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
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation