Essays on Equity

Answer A)

Revenue/Operating Expenses/Operating Income/Net Income Analysis:
Referring to the previous five year financial statements of the company from the year 2009-2013, the revenue of the company has increased consistently over the years from $197 Millin during 2009 to $419 Million during 2013. However, as displayed in the graph below, the trend in net income has been downside-up. The Net income of the company reduced significantly during 2009 -2011 from $82 Million (2009) to $53 Million (2011).
Interestingly, the reason for fall in net income during those years was significant increase in operating expenses. For Instance, during 2011, operating expenses accounted ...

Daktronics' Capital Structure Policy

Worksheet 5:
Current Debt-Equity Policy of the company:
Referring to the financial statements of the company, we came to know that since the company has not acquired any debt financing in its capital structure, the debt equity ratio has been zero(0) since 2010. Thus, although the company is trading without any financial risk, but since it is not using the available debt resources, it is letting go the advantages offered by debt financing in the form of tax shield. Thus, the treasurer should consider including debt financing as it will only add value to the company because of ...

The capital structure of the company refers to sources of financing which the company has employed to finance itself. The major sources of capital structure are Debt and Equity and for every firm, choosing the best proportion of each source and how it will satisfy the capital hunger of the entity, is a crucial decision.

Analyzing Capital Structure of Wal-Mart:

Referring to the financial statements of the company, we can conclude that the company is following Pecking Order Theory of capital structures as it relies heavily on retained earnings followed by debt financing and then equity financing.
As for the year 2012, the capital ...

Aggressive Equity investors

Aggressive equity investors play their equity game both actively and vigorously. They spend most of their time and effort in managing their portfolio better than their conservative counterparts. The aggressive equity investors are inclined towards taking greater risks, although in a calculated manner, in order for them to earn superior rates of return. They seem to enjoy the pleasure and adventure of playing the equity game (Chandra, 2008). The following guidelines are relevant to for aggressive equity investors for investment decisions.
If equity investors wish to manage their investment well they should know that they should have knowledge of ...

Solvency Ratios:

These ratios indicate the long term solvency of the company, i.e., if the company will be able to honor its long term obligation. Furthermore, it also helps in understanding the capital structure of the company. Below discussed are the solvency ratios of Debenhams Inc:
i) Debt to Equity: Debt/ Equity
(Debenhams, 2013)
ii) Interest Coverage Ratio: Operating Earnings/ Interest Expense
iii) Debt to Capital Employed Ratio: Debt/ Capital Employed (Mckeith, Collins, 2013)
*Debt= Total Debt
*Capital Employed: Total Assets- Current Liabilities

Analysis:

The above analysis of the company using Solvency Ratios indicates that, over a year, the long term financial ...

i) Calculating cost of equity using CAPM Model:
Capital Asset Pricing Model, often abbreviated as ‘CAPM’, is the most fundamental concept in the investment theory of present time. This is an equilibrium model that predicts the expected return on a stock, given the expected return on the market, the stock’s beta-coefficient and the risk free rate. Considered from the borrower point of view, this model is used to calculate the cost of equity for the company using the following formula:
Cost of Equity= RFR+ Beta(Equity Risk Premium)

Below is the detailed explanation of cost of equity calculated for Tim Hortons Inc:

Risk Free Rate: This refers to rates being offered by ...

AES is a leading independent supplier of electricity in the world with more than $33 billion in assets. Rob Venerus, the director of Corporate Analysis and Planning group was faced with a task of calculating the capital cost of the business. Many financial information and results were collected from subsidiaries in June 2003. The manager was obligated to develop a methodology to use the data to determine the costs of capital significantly in valuation and for capital budgeting. The group was created to solve the financial crisis, current and future strategic challenges.
The global economic instability had adverse effects ...

Answer a)

Market is said to be efficient when the same amount of information is available to all investors at the same amount of time. In other words, an ‘Informational Efficient Market’ is said to be efficient Nobel Laureate, Eugene Fama was the strong proposer that the market is efficient, i.e. , since similar amount of information Is available to all the investors at same amount of time, all the stocks in the market are perfectly priced and no investor can beat the market returns.
However, whether the stock markets are efficient or not, the topic is still in debate despite of ...

Since, the portfolio construction is based on Moderately Conservative Risk Tolerance, this is a clear indication that the investor is either retired or is retired and is solely relying on paychecks from the portfolio income. Another extreme case can be that the investor has already faced the negative side of investment and has lost his money in the past and thus, he prefers to be moderately conservative in his investment approach. Thus, being an ethical investment advisor firm, we cannot force the investor to change his investment approach and thus, we shall continue with the portfolio construction as per ...

Introduction

A balance sheet is a financial document that gives a summary of the company’s assets, liabilities and shareholders’ equity for a specified period of time. It is used by investors to gauge the financial health of companies. Most companies use financial software and applications to prepare balance sheet. However, it is also possible to prepare balance sheet in Microsoft Excel. Definition
This is a manual for making balance sheet in Microsoft Excel 2007. The Manual contains procedures used to develop a fully functional balance sheet template based on specific financial items.

The balance sheet is automated by the ...

Company: Diageo Plc

Industry: Alcoholic Beverage Industry
Diageo Plc is a British, multinational alcoholic breweries manufacturer. The company is headquartered in London, United Kingdom and the primarily operations of the company are related to the manufacturing of alcoholic breweries which includes, wine, spirit and beer. With the market capitalization of $78 Billion, it is the eight largest company registered on the London Stock Exchange.

Diageo is also a proud owner of the leading brands in the alcohol industry as Smirnoff, Johny Walker and Guiness.

Stock Exchange Listing/ Stock Market Activity:
Diageo Plc is registered on London Stock Exchange under the ticker symbol of ‘’DGE’’. With the average volume of 622,398 shares, the company stock price is in the increasing trend. Referring ...

Discussion questions on Corporate Finance

The weighted average cost of capital represents the average cost that a firm has to pay on its fund. It is used as a discount rate to analyze whether an investment project is attractive, and sets the minimum return that a firm must generate on its assets.

What are some components of WACC?

The WACC is an average of the cost of equity and the cost of debt (which are the two main sources of financing for a firm). These two components are weighted with their relative weights in the capital structure of the firm: the cost of equity is multiplied by the percentage of ...

Debt and equity financing for an investment outsource

In the investment of technology, in an organization, the stakeholders will consider the benefits that will ensure that the value, share and wealth are raised. To consider the debt or the equity financing, they will evaluate the level of returns. Debt financing is where they take a loan so as to invest in technology development. Even though it does not dilute the business ownership, it has a number of shortcomings. Money must be paid in spite of the business success. It requires commitment of the business assets and to the extent of the personal assets as collateral.
On the ...

Answer 1)

Equity Financing:
Also known as risk capital, Equity financing refers to own capital invested by the entrepreneur in addition to capital raised from family, friends and angel investors.

Advantages of Equity Financing:

Expanded Capital Base:
The fund so raised during equity issue are used for Capital budgeting Decisions and to perform necessary Research & Development that are quintessential for a company’s growth which is possible only because of expanded capital base.
Though above discussed advantages may lure the company to go for Equity financing but the disadvantages it carry cannot be overlooked.

Disadvantages of Equity Financing:

Ownership Dilution:
The decision to accept equity financing leads to ownership ...

28th Februar, 2014

Financial Analysis
Answer 1)
Liquidity Analysis:
These ratios are used to judge short term solvency of a company i.e if it can honr its short term obligations. Generally two liquidity ratios are calculated:
i) Current Ratios = Current Assets/ Current Liabilities
ii) Quick Ratios= Current Assets- Inventory/ Current Liabilities
ii) Solvency Ratio:
These ratios are used to adjudge the long term solvency of the company i.e if the company can honor its long term obligations.
i) Debt to Equity Ratio: Debt/ Equity
ii) Interest Coverage Ratio: Operating Income/ Interest Expense
iii) Profitability Ratio:
One of the important ratios both for ...

Introduction

Equity, equality and access are pertinent issues that have a considerable bearing on the education of K-12 school going pupils in the United States. The state of Pennsylvania has adopted strategies and policies tailored to ensure that students have equal access to educational facilities and resources (OpenCongress, 2014). This paper discusses the organizational structure and the structure of governance adopted by the state of Pennsylvania in addressing educational equality concerns. Subsequently, it presents an analysis of the policies of the state with regard to funding of the equality projects and concludes with a discussion on the effects of equal ...

Introduction

Most business enterprises are normally creations of ingenious business minds that make difficult financial decisions in order to take the business to the next level. In most occasions, only businesses with spectacular principles and competitive managers have an edge over competitors thereby staying in a market. An important aspect of a business is its mode of financing which can either be equity or debt business financing. This paper gives a comprehensive discussion on the advantages and disadvantages of both equity and debt as business financing strategies. Additionally, the paper gives a recommendation on the decision of AMSC to settle ...

Research Problem

Funding a business is a complex issue. A new business owner should identify whether he or she is willing to finance the new business with the help of equity or debt. Each of the funding methods has its advantages and disadvantages. Equity financing allows business owners avoid making large loan payments. Investors may offer valuable business assistance to the new business owner in the case of need as they are interested in the success of the venture. If all risks are clearly explained to the investors, they will understand if the business fails. However, the investors will own a ...

Introduction:

Bank of America is a Multinational Banking and Financial Services company headquartered in North Carolina. The Bank operates in 50 states of The United States and 40 countries around the world. The corporation came in news when it bought Merill Lynch during the financial crisis of 2008 and made it the world’s largest wealth management company. However, in order to undertake an indepth view of the corporation’s financial health, we will be conducting ration analysis of its financial statements.

Ratio Analysis

Regulatory Capital Adequacy Ratio Analysis:
Capital Adequacy ratios are calculated specifically for the banks and financial institutions. The ...

Accounting Concepts

Answer 1)
Partnership is a business organization with two or more owners who agree on sharing profits at an agree ratio but at the cost of unlimited liability. Apart from profits, they must agree on the appropriate management structure also. Following are some pros and cons of a partnership firm:

Pros:

- It is easy to set up
- It offers diversified decision making process
- Profits fo the firm are taxed only once as onwer’s income

Cons:

- Regular collisions among partners might be possible and thus achieving consent of all may be slow and expensive
- Since they ...

Introduction

The initial step in constructing Mr. Donothing portfolio is to determine the appropriate asset allocation. To begin with is by ascertaining Mr. Donothing financial position and investment goals. The most important factor to start with is Mr. Donothing age, available opportunity of growing his investments as well as the amount of capital that may be required for future capital needs. At the age of 55 Mr. Donothing will be planning of paying his child’s education. Another factor to consider is his risk tolerance. Would he be willing to risk some money for a possibility of greater returns? Mr. ...

I would ask Peter Lynch a question on the weighted average cost of capital (WACC). The reason is that it is used to calculate the firm’s average cost after all the tax has been deducted. In addition, WACC is used in discounting cash flows for calculation of NPV and effectively the valuations for business analysis and investment.

A corporation has one million shares of common stock currently trading at $30 per share. Current risk free rate is 4%, market risk premium is 8% and the company has a beta of 1.2.

It also has 50,000 bonds with of $1,000 par paying 10% coupon annually maturing in 20 years currently trading at $950.

The tax rate is 30%. Calculate the ...

Whenever investors want to make a good buy, they always look at a number of parameters including earnings per share, earning growth rate, and debt-to-profit ratio. These parameters are very important to an investor because they ensure that investors identify the best companies for investment. However, there are other parameters that enhance an investor’s returns. A company’s beta value is one of the most important parameters that enhance returns. This is because investors can use it to analyze the tradeoff between risk and return. Understanding Apple’s beta value is an important factor in stock research for ...

Introduction

The report is prepared with the objective of conducting the financial analysis of Domino Pizza Enterprise Ltd that is listed on Australia Stock Exchange under the ticker symbol of ‘DMP. The report carries great significance for us to attain the knowledge of financial analysis and how the financial ratios and other multiples can affect our investment decision relating to a company. To simplify the analysis and to facilitate the reader, we divided the report in multiple sections relating to ratios, intrinsic value calculation and calculation of cost of capital.

i)Liquidity Ratios:
i)Current Ratio: Current Assets/ Current Liabilities
...

Section A: Vertical and Horizontal Financial Statements

In this section, we will produce horizontal and vertical financial statements of the company which we will use later to frame a brief report relating to the financial performance of the company over a period of one year, i.e. from 2012 to 2013.

Horizontal Balance Sheet

Horizontal Income Statement
Vertical Balance Sheet
Vertical Income Statement
Section B: Cash Flow Statement
In this section, we will produce a tentative cash flow statement of the company from the given financial statements. Important to note, we will be directly using the numbers from the financial statements and no assumption shall be made related to any ...

The difference between both the methods of measuring inventory is the way in which the cost of goods sold is calculated. A company ideally does not keep a track of every single piece of incoming and outgoing goods hence it is required to calculate the inventory at the end of an accounting period. There are two methods of calculating the inventory that is FIFO and LIFO. Fifo means first in first out, so whatever goods come in first are sold in the same order. Hence the goods that were purchased last will remain in the inventory. In case of ...

(Professor Name)
Charles’ appointment as an executor of Lord Marchmain’s will makes him responsible for administering the deceased estate. As an executor, Charles must collect all the assets of the estate, ascertain the estate’s liabilities and pay all its debts, taxes due, funeral and administration expenses out of the deceased estate. Ultimately, Charles will have to transfer any remaining estate to beneficiaries. Lord Marchamain’s estate include: the Beechyhead Castle, 100,000 loan to Charles, 400,000 contained in the Building Society Account, Art restoration business. The beneficiaries of the deceased estate are Julia, Sebastian and Cordelia. ...

Executive Summary

The report is based on financial analysis of American Express for the purpose of providing recommendation to the investors over stock purchase. We initiated the analysis process by conducting the horizontal analysis of the financial statements of the company where we found that although the increase in revenue figures and operating income were less than that in year 2012, but the company was successful in increasing its net income by 19.57% this year courtesy lower interest expenses and other expenses.
As for the ratio analysis, we found that over the year, the company has improved profitability and better solvency ...

Economic Analysis

The very first step in the equity valuation approach is related to the economic analysis as an existing economic environment has a substantial effect on the performance of a firm. The economic environment of a nation is mainly driven by fiscal and monetary policies which through their respective tools decide the direction of economic growth. In addition, other factors such as inflation rate, political turmoil and international monetary devaluations also affect the existing economic condition of a nation followed by corresponding effect on the industries operating in that particular nation.

Industry Analysis

The second step in the equity valuation approach is ...

Britvic Company Financial Analysis:

Introduction:
With operations in prominent countries of Europe like the Great Britain, Ireland and France, Britvic is renowned as one of the leading soft drink companies in the whole of Europe (Marketwatch.com, 2014).
The Company has been able and successful in setting up a definite portfolio across the markets where it operates. The brands of the Company that have captured its own market include Robinsons, Tango, J2O, drench, MiWadi, Ballygowan, Teisseire and Fruité. The Company also produces and sells famous drinks of PepsiCo Company such as Pepsi, 7UP and Mountain Dew Energy, in Britain and Ireland, as per theelite ...

Abstract

This paper discusses in detail a proposed change is company’s capital structure from 0 debt to 25% of the market value of the current Equity. The plan is to issue bonds for $ 3 375 000 at 9% interest and use the raised funds to repurchase 125 000 outstanding shares at the current market value of $ 27. This move will bring the total equity down from 10 000 000 to 6 625 000 and will increase the cost of equity from 11 to 13%. This will also bring our debt to equity ratio from 0 to 0.51. This level ...

The task of this paper on motivation is designed to describe the two scenarios provided from a motivation standpoint. The first chosen scenario is the one involving the person who bought a new Audi car who sees the word ‘FUSE’ lit up on the dashboard, followed by an annoying beeping sound after which the car dies. Several trips to the dealership in an effort to get the car fixed inspires emotional annoyance and creates inconvenience. The second chosen scenario involves Jill who meets Jack on a roller coaster ride and falls madly in love with him. In the beginning ...

Q42.

A. It is very unlikely that Carol will succeed with her breach of contract case. For such a case to succeed, she should prove that there existed a contract between her and Sandy to lawn the yard, which was not the case. Typically, for a contract to be valid, it must meet four basics: offer, acceptance, mutual assent and consideration. All these were lacking in the issue. It was her mistake that she took the wrong details and worked on a different yard
In a contract, one party must propose to sell a certain service or product to the ...

The $118,650 net income indicates a successful year for Nybrostrand Company. Calculating commonly employed financial statement ratios further enhances the company’s profitability and financial strength.
The 48% gross margin ratio, computed by dividing gross profit on sales by revenue, indicates Nybrostrand will retain $0.48 from each dollar of revenue generated that will be used to cover all other expenses and a possible distribution to shareholders. This 48% gross margin eclipsed the 27% total expenses to revenue ratio enabling the successful year.
The company’s short term solvency is evidenced by a strong 1.3 current ratio. This ratio ...

Target Corp. (TGT) Current Price: 71.57 +0.06(+0.09%) NYSE

As of Nov 24, 2014. 01:17pm EST

TGT Stock Price
http://finance.yahoo.com/echarts?s=TGT+Interactive#symbol=TGT;range=3m
http://finance.yahoo.com/q?s=tgt&ql=1
In the past three months, the stock price of Target group has increased by $12. The current price of the stock is at $72. The TGT stock has followed the bullish trend in past three months. If we closely analyse the stock price movement of TGT from Spetember, then there are no any major bumps in the stock price, and the price movement is natural. There are no major fluctuations in price while the ups and downs seen are the natural ups and ...

Debt Financing is borrowing money from a source outside the organization with a promise to repay it along with a certain amount of interest. Debt financing carries a burden of interest on the borrower. It also carries the burden of repayment of the principal amount after a certain period of time. Debt financing is by bank, private companies or borrowings from friends and family. Borrowing an amount from bank or borrowing money from a friend are examples of debt financing. The benefits of debt financing are that the rate of interest is lower and the borrower is able to ...

Introduction

The paper is being written with the objective of conducting the financial analysis of Amazon Inc. of past three years using the tool of ratio analysis. For this very purpose, the participants will be using the financial statements of the company for the year 2011, 2012 and 2013, while the report will be concluded with the critical analysis of the trend in the ratios observed. They are sure that by the end of this report, we will be having comprehensive overview of the financial performance of the company. Today it is the largest internet based company in the United ...

Psychology

In the case before the Manhattan court, Sage Kerry, head of healthcare investment banking at Jeffries, is in a divorce lawsuit of US$7 million with his estranged wife Christina. Sage and Christina, a housewife who was former Italian fashion representative, have two children. The two exposed each other in signed court affidavits presented to the court as drug users. Christina describes her husband as “a real life wolf of the wall street” due to his behavior of romping with hookers and using Hallucinogens, even in the presence of their children. Denying the accusations, Sage describes his former wife ...

Financial Analysis: United Health Inc.

Financial Ratios
Ratios are important tool of financial analysis that are primarily used by the analyst so as to know the pas trend in the financial performance of the company and also to unearth the real time financial position. However, analysts never base their decisions on just one set of ratios for conducting the financial analysis of the company, rather the following set of ratios is commonly used by them:
- Liquidity Ratios
- Profitability Ratios
- Solvency Ratios
- Efficiency Ratios

Ratio Analysis: United Health Care Inc.

In this section, we will conduct the financial analysis of the company using the above stated ratios. ...

Part 2:

Introduction
The Capital Structure Propositions proposed by Nobel Laureates, Franco Modigliani and Merton Miller has a significant relevance even in the modern day financial theory. The propositions proposed by them are popularly known as MM Propositions which they proved under restrictive set of assumptions to counter the traditional approach of capital theory which states that there is always an optimum mix of capital structure for a firm that assists in attaining maximum value for it. The difference in the traditional approach and MM Propositions will be discussed in detail in the succeeding sections, while now we will explain the ...

Evaluation of Corporate Performance

Evaluation of Corporate Performance
Apple Inc. is one of the most innovative and the famous corporations in the world today. Apple Inc. is the leading manufacturers of mobile phones, tablets, laptops and other electronic devices. However, their product ‘iPhone’ is the leading smart phone brand as compared to their other products. Apple Inc. was founded in the year 1976 and incorporated in the year 1977. The main aim of the company was to make and produce the personal computer for their clients. Apple Inc. is the second largest company in the smart phone industry on the basis of capitalization ...

The report is being made with the objective to understand the ongoing trend in J Sainsbury Plc from 2009 till 2013. However, to facilitate in-depth analysis, we have bifurcated the report in two parts with Part 1 dealing with trend discussion relating to financial structure, investing decisions and change in dividend payments while ach of the discussion will be validated using the financial notes or through calculation of ratios. On the other hand, Part 2 is related to discussion over the change in remuneration package of the executives since 2009-2013 and how it related to the agency theory.

Part 1: Trend Analysis using Ratios:

Change ...

Equity is an importance source of financing for any firm. Usually a firm relies more on equity than any other form of financing because it is easier to obtain and is better than debt financing. It is better than debt financing, because there is no fixed charge on the use of firms, and unlike debt financing who can make the owner’s liable for their losses, the equity owners can lose only their investment in the company.
One of the most important ways to price the cost of equity is by using the Capital Asset Pricing Model (CAPM). CAPM ...

Branding is a phenomenon that had its origins the ancient times at various parts of the world. An analysis of the literature of branding shows clearly, how branding is useful in conveying product information to its stakeholders, and how useful it is in attracting customer attention. Various researchers have investigated the benefits of branding both from a company’s perspective, and customers’ perspective (Keller, 1993). There exist myriad amount of papers that discuss how branding paves way for product differentiation, how a good branding strategy impacts customer perception, and how it influences customer willingness or preference to purchase a ...

Introduction

Building and managing strong brands is regarded as one of the key drivers for attaining success in the hospitality industry. The trend can be observed at both the local and the global level. Application of brand and line extensions has become a major trend in the hospitality industry. Brand extensions and line extensions would be the key method for launching innovations in coming years (Sumarjan et al 2013). The critical review of brand and line extensions for hospitality industry is done to understand the impact on the industry, brand management and brand equity.

Impact of brand and line extension on management of brand in hospitality industry

Strategies for brand extensions are beneficial ...

Question 1

Inflation is a general rise in commodity prices. Inflation affects traditional profitability measures since such measures ignore the time value of money. Traditional measures are constrained by the fact that initial costs are valued at the historical value while cash flows or benefits are valued at current prices. In periods of inflation, traditional profitability measures will be misleading.
Cash on cash return is given by the ratio of after-tax cash flow and equity investment. It is commonly used in evaluating real estate investments. The ratio gives the amount of money a project generates for every unit of equity invested ...

Financial Structure: Caterpillar Inc v/s Union Pacific Limited

About the report:
In this report, we will compare the source of funding and financial position of two companies, i.e. Caterpillar Inc and Union Pacific Limited. The purpose of this report is to find out the difference between the financial structure of the two companies.

Union Pacific Limited:

Referring to the balance sheet of the company and accompanied note 14 of the financial statements, we notice that at the time of its latest annual reporting, the company had a mixed proportion of debt and equity in its capital structure.

Debt Position:

As for the debt position, the company had the total long term debt ...

A company that operates and needs additional capital for expansion will always favor the use of debt as a source of financing. Using debt has a relatively lower “cost” compared to equity, which is one of the biggest advantages of using debt financing.
There are obvious potential issues, which are considered as risks when debt financing is used. A potential issue is the presence of recurring loan payments. Companies will have to include the payment of interest and principal and deduct these from the company’s cash flows. Another risk is that of bankruptcy. If a company does not ...

Question one

E[r] =SkP(s)rk
Where E[r]= is the expected return,
FOR (A) P (k) =probability that the rate (rs) occurs, (A) = (0.3, 0.4, 0.3,) FOR (B) = (0.2, 0.3, 0.3, 0.2)
Rk = the return at s level FOR (A) =11%, 15%, 19% FOR (B) =--5%,6%,14%,22%
For (B) = 0.3*11 %+( 0.4*15) + (0.3*19) =11.733%
For (A) = (0.2*-5%) + (0.3*6%) + (0.3*14%) + (0.2*22%) =0.094%

Therefore from the calculations above, investment in stock A is better in terms of its performance capacity.

Question two
Capital pricing model
g + (current annual dividends (1+x) /current price)

Where x is constant growth

For TASCO, the corresponding rate of return = 1261.66
For LBM, the corresponding rate of return= 1526.57
For ...

Expected stock return reefers to the amount expected to be received on an investment such as stock, which has diverse known rated of return. For instance, in a stock, which had 20% probability of producing 5% profit and a 20% probability of producing 2% loss, the expected return would be 0.1% (0.2* 0.05+0.2-0.02). This essay seeks to examine the two measureable variables, which are used to capture the cross sectional variation in average stock returns attributed with the market β, size, earning price, leverage and book-to market equity. The variables include are size and book to market equity.
As ...

The “Equity premium,” written by Eugene F. Fama and R. French (2002) describes how to estimate equality premium using both dividend and the growth rate of earning to predict the rates of expected capital gain. The equality premium is important in making decisions on portfolio allocation and in estimation of capital gain. The expected market return is estimated using the returns on portfolio of stocks. To estimate the stock return, the dividend and earnings are used along with other evidence to determine if the expected return is higher than the realized average. In this case, the average stock return ...

Floatation Costs associated with stock issue

The floatation costs associated with stock issue comprises of two cost:
i)Underwriting spread: This refers to difference between the gross and net proceeds from a given security issue. This is generally expressed as percentage of the gross proceeds.
ii) Issuing Costs: This costs includes various fees associated with stock issue such as Legal Fee, Accounting Fee, etc.

Comparing Floatation Cost of Stock issue with Bond issue

Floatation cost associated with stock issue is higher than that for bonds.
Preference Stock: Goldman Sachs Inc.
Referring to the financial statements of Goldman Sachs Inc, we found that the company has preferred stock worth $720 Million. As for the performance ...

Introduction

Profitability and efficiency are two important aspects for an entity, and an analyst would analyze these two aspects in order to analyze the loopholes of an entity. Financial Statement Analysis (FSA) is an important type of valuation that used by the analysts in order to analyze the level of efficacy of an organization (Blaug & Vane, 2003). FSA is termed as the analysis of the financial statement that usually associated with income statement, balance sheet, cash flow statement and changes in equity. All of these four elements are essential to analyze the main holes of the company. FSA merely used ...

M2 Group is a large wholesaler of communication services in Australia. The group has its presence in Australia, New Zealand and Philippines. It is a large employer having more than 3500 employees worldwide. Recently, the company has made acquisitions in energy and utilities sector to diversify and hedge its position. It has also bought assets in communication sectors that are believed to have a high growth in the future. All of these had an impact on the overall financial structure of the company which is going to be discussed in the coming parts of this paper.
Managerial Inertia theory ...

Balance Sheet:a)What components of stockholders' equity do each of the companies disclose?

Referring to the balance sheet of both the companies, below is the information relating to stockholder equity:
Meiji Holdings:
The company during 2013, has total stockholder equity of $3242.84 Million with the components of stockholder equity as follows:
- Common Stock(Authorized and Issued)
- Capital Surplus
- Retained Earnings
- Treasury Stock(at cost)

General Mills Inc:

Noted from the balance sheet of the company for the year 2013, the total stockholder equity of the company was reported to be $3242.84 Million with the component of stockholder equity as follows:
- Common Stock(par value)
- Additional Paid-in Capital
- Capital ...

Financial ratios are calculated to determine a company’s performance and position by investors. The purpose is to identify whether a company is stable and if it is worth investing in.

PepsiCo Data

The balance sheet provides further data as follows (all data in billions)
Current market price for PepsiCo share is 91.51
Key Financial Ratios
Based on this data the following ratios were calculated –
- Liquidity and solvency ratios to see if a company can deal with its debts
- Current ratio = Current assets/Current liabilities = 1.24
- Quick ratio = Quick assets/Current liabilities = 0.93
- Debt ratio = Total liabilities/Total assets = 0.69
...

Part 1

- Liquidity Ratios
Current Ratio = Total Current Assets/Total Current Liabilities
2011: 44988/27970= 1.61
2012: 57653/38542= 1.50
Working Capital = Total Current Assets – Total Current Liabilities
2011: 44988-27970=17018
2012: 57653-38542=19111
- Profitability Ratios
Return on Assets Ratio = Net Income/Average Total Assets
2011: 25922/58185.5= 0.45
2012: 41733/88032= 0.47
Gross Margin Ratio = Gross Profit/Net Sales
2011: 34205/108249= 0.32
2012: 55763/156508= 0.36
Profit Margin Ratio = Net Income/Net Sales
2011: 25922/108249= 0.24
2012: 41733/156508= 0.27
Return on Equity Ratio = Net Income/Average Shareholders' Equity
2011: 25922/38307.5= 0.68
2012: 41733/59105= 0.71
- Leverage ratios
Debt to Equity Ratio = Total Liabilities/Total Shareholders' Equity
2011: 39756/76615= 0.52
2012: 57854/118210=0.49
...

Advantages and disadvantages of equity financing

Advantages
One advantage of equity financing is that AMSC will not be forced to make any regular payments to shareholders. Equity holders in the company benefit through dividends and capital gains that arise from the appreciation of shares of the company. Corporations do not have an obligation to pay dividends to its shareholders. AMSC will only pay dividends to its equity holders if the company makes a profit. The rules for capital maintenance stipulate that companies should pay dividends out of distributable profits (Baker & Martin, 2011). It implies AMSC will not make any distributions to shareholders if it does ...

Insititution

Cheniere Energy is a company based in US, that caters to the needs of gas requirements for various purposes. After studying the financial statements, the on going operations should be expanded and a larger customer base should be created. New technology and volatility in the rates shows a steep fall in the demand and consumption of gas, the future predictions also do not show a rise. . This year the company dropped the plan to issue $30 million shares to pay its employees that subsequently gave a rise to the share value of the company. The revenues of the company ...

Introduction 3

Capital Structure Issues 3
Business and Finance risks related to capital structure 4
Modigliani and Miller’s [MM] capital-structure theory . 5
Criticisms of the MM model and assumptions . 5
Capital-structure evidence and implications . 6
Estimating the firm’s optimal capital-structure .. 8
Conclusion .. 10

Introduction

Capital structure management is crucial in enhancing business sustainability. In that respect, as a business environment change, organizations seek to manage their balance between debt and equity application. In that respect, this analysis seeks to demonstrate the effects of capital structure on a business risk and returns. To achieve the objective, the analysis uses ...