In this portion, the MM approach for the capital structure theory has been described, and the assumptions have been stated and criticized. The main objective of this project is to show the importance of the capital structure of a company and its affect on the performance. A detailed analysis of the debt and equity financing has been done in this project from 2010 to 2012. Their implications have been discussed. In this project, it has also been shown how the capital structure of a company determines the business risk. Table of Contents Table of Contents 3 Introduction 4 Business and Financial Risks 5 Business Risks 5 Financial Risks 5 Modigilani and Miller’s Capital Structure Theory 6 Capital Structure Evidence and Implications 7 Optimal Capital Structure for the Company 9 Conclusion 11 References 12 Appendices 13 Introduction Coca Cola is a multinational beverage manufacturer, marketer and retailer of non-alcoholic beverages (Coca Cola, 2013a). It has its headquarters in Atlanta, Georgia. It was established in 1886 by John Pemberton who was a pharmacist in Columbus, Georgia (Coca Cola, 2013b). Initially the beverage was sold for 5 cents each glass at Jacob’s Pharmacy and regularly nine glasses were purchased. John Pemberton died within two years and after that the brand was bought by Asa Candler in 1889 (Coca Cola, 2013c). From 1900 to 1920, the company expanded to a great extent. Robert Woodruff was appointed as the President of the company just four years after it has been bought by his father from Asa Candler. He remained in that position for a period of more than sixty years. From 1950 to 1960, the company introduced different flavors of juices in its product line. Presently the company serves in most of the remote areas of the globe and has more than five hundred different drinking brands. The company is currently financing its operations with higher dependency on debt capital. There are various factors that affect the capital structure of the company. It needs to be financially flexible in order to adapt to the changes in the existing market. The financial performance of the company has improved significantly. The company is enjoying tax benefits because of the high debt financing. Thus, the tax position of the company is good. There are various other business risks which are reducing its growth opportunities. Business and Financial Risks The company has some risks which pose a threat to the projection of growth. Business Risks Changes in the Customer Preferences Presently, it has been observed that the customer’s preferences for non-alcoholic drinks have changed due to various health concerns, changes in their lifestyle and also the pressure from the competitive products in the market. The company should try to adapt to the changes with the current market conditions in order to lead the market and also to reach to other areas which have not been explored. Increase in Competition Among all the leading beverage manufacturing companies, PepsiCo is the major competitor of Coca Cola. There is also an increased competition from different beer manufacturing companies which provide various non-alcoholic products. Thus, Coca Cola is facing a threat from the strong competitors in the market. Financial Risks Fluctuations in Foreign Exchange Rates The company incurs liabilities in different currencies apart from that of dollar. The changes
Business and Financial Risk Name of the of the University Date Abstract The project includes capital structure analysis of a public company. The company that has been chosen to perform the analysis is Coca Cola. In the first portion of the project, an introduction has been given about the company Coca Cola along with the present capital structure issues related to the company…
This is translated to mean the proportion that a business has as equity capital in comparison to the proportion that it holds as debt for the purposes of financing the assets of the company. It determines long-term borrowings’ paying ability of a given company.
These ratios indicate how companies have financed their needs of capital for the current operations. That also shows whether company prefers to use higher leveraging in financing its needs or not. These financing has different implications for stakeholders, creditors and debtors and should be viewed accordingly.
The statements may be prepared in certain future period and enable the manager fund required. ?The funds required are determined: after drawing the projections in terms of marketing activities, sale of products and the production cost, finance manager draws up a plan of the required funds depending on the time factor.
These requirements are generally met by means of short term sources of financing. Sources of short term funding Hire purchase It is an instalment credit where the hire purchaser or the hirer takes different goods on the basis of hire at a predetermined rental rate (including the principal as well as the interest amount the option of such purchase).
Cash flows allow estimating the depreciated value of assets owned by a company and further requirements to contribute in effective budgeting. Capital Asset Budgeting is also practiced commonly by corporations, which is however often criticized owing to its complexities and needs for continuous record-keeping (Oracle, 2008).
In this line, an investment banker therefore is fundamentally any intermediary in the process of investment banking.
Investment bankers come in the situation where, for example; one has an idea of and is seeking to set up a business but lacks
decision making over capital items, the weighted cost of capital is usually the sum of the cost of equity as well as the total cost of debt and the cost of preferred stocks with respect to their proportions in the business.
Debt is an important constituent to the capital
n made consideration of purchasing the ambulance on the premise that their area of coverage in medical emergency surveillance is extensive, and sometimes patients take long before reaching the hospital.
A number of decisions need to materialize. The organization ought to decide