Term Paper Capital Structure

Many middle-class investors believe that the goal in life is to be debt-free.When you reach the upper echelons of finance, however, that idea is less straightforward.The great managers have a knack for consistently lowering their weighted average cost of capital by increasing productivity, seeking out higher return products, and more.This is the reason you often see highly profitable consumer staples companies take advantage of long-term debt by issuing corporate bonds.This was one of the secrets to Sam Walton's success at Wal-Mart.

Term Paper Capital Structure-53Term Paper Capital Structure-32

Other types of debt capital can include short-term commercial paper utilized by giants such as Wal-Mart and General Electric that amount to billions of dollars in 24-hour loans from the capital markets to meet day-to-day working capital requirements such as payroll and utility bills.The sample that is researched are 48 companies of Consumer Goods Industry Sector using the method of puposive sampling.This research uses partial least square analysis using Smart PLS program.A speculative mining company that is looking for silver in a remote region of Africa may require a much higher return on equity to get investors to purchase the stock than a firm such as Procter & Gamble, which sells everything from toothpaste and shampoo to detergent and beauty products.The debt capital in a company's capital structure refers to borrowed money that is at work in the business.The cost of debt capital in the capital structure depends on the health of the company's balance sheet — a triple AAA rated firm is going to be able to borrow at extremely low rates versus a speculative company with tons of debt, which may have to pay 15 percent or more in exchange for debt capital.Aside from equity and debt capital, there are other forms of capital such as vendor financing where a company can sell goods before they have to pay the bill to the vendor, that can drastically increase return on equity but don't cost the company anything.This is true for Fortune 500 companies and for small business owners trying to determine how much of their start-up money should come from a bank loan without endangering the business.Many consider equity capital to be the most expensive type of capital a company can utilize because its "cost" is the return the firm must earn to attract investment.To truly understand the idea of capital structure, you need to take a few moments to read about the Du Pont model to gain an insight into how capital structure represents one of the three components in determining the rate of return a company will earn on the money its owners have invested in it.Whether you own a doughnut shop or are considering investing in publicly traded stocks, it's knowledge you simply must have if you want to develop a better understanding of the risks and rewards facing your money.

Leave a Reply

Your email address will not be published. Required fields are marked *

One thought on “Term Paper Capital Structure”

  1. As an elder in the Sandemanian church, Faraday often presented sermons, or "exhortations," as they were called. Torrey (18561928), a leading world evangelist at the turn of the twentieth century, played a prominent role in the emergence of fundamentalism, which aimed to defend Christianity against liberalism.

  2. CES was founded in 1996 through a visionary partnership of two Stanford GSB faculty, Charles A. Irving Grousbeck, to address the need for greater understanding of issues facing entrepreneurs and the entrepreneurial community.