Accors optimal capital could be achieved when the marginal cost of each source of finance is the same. There is on optimal capital structure for all firms for all times. The financial managers should try to develop an appropriate capital structure. That ha these features.
Simple in the initial stages by limiting the number of issues and types of securities. This will avoid investors becoming hesitant from investing in the company. Preferably Accor should issue equity and preference share in an attempt to develop an optimal capital structure.
Retaining the ultimate control of accompany with the equality shareholder who have the right to elect directors/control in management is important.Accor should issue less equity shares and preference share and debentures in large numbers to the public because these carry limited voting rights whole debentures don't have any.Companys capital structure in such away which would favourably affect the voting structure of existing shareholders and increase their control on the company's affairs.
Liquidity can be achieved for the solvency of corporation Accor should avoid all such debts which threaten the solvency of the company. A proper balance between fixed and current assets is maintained according top the nature and size of business. Flexibility in capital structure enables the company to make necessary changes in it according to the changing conditions and make it possible to procedure more capital whenever required or redeem the surplus capital.
Capital structure of such a company will also follow the policy of conservatism, this helps in maintaining the debt capacity even in unfavourable circumstances.
Accor needs to maintain a good balance for optimum capital structure as both over capitalization and undercapitalization are disastrous to the financial interests of Accor.
A sound capital structure attempts to secure balance leverage by issuing both types of securities i.e. ownership and creditor ship securities. Debentures are issued when the rates of interest are low cost of debt is one of the components of cost of capital incurred by an organization. Cash generated in an organization as profits are used to pay for taxes and interests on types of securities acquired for the company.
It is obligatory for the corporation to pay interests to money lenders like debenture holders and even preference shareholder. If Accor maintains more debt, it means that it will be overburdened in servicing the debt needs with interests and eventually pay the equity shareholders earning that were ploughed back.
To assess whether Accor maintains a capital structure for Accor, we should consider both internal and external factors. These include: - internal factors.
Nature business when a company is getting stable earning then it can afford t raise funds through sources involving fixed charges, public utilities, finacing and merchandising enterprises are more stable in their earning and enjoy greater