Good Case Study On Company Capital Structure Analysis
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Verizon and BT are considered the largest institution in the video conferencing industry due to their capacity to finance the day to day operation. According to the recent research, it is evident that both Verizon and BT have a stable capital structure that has led to the realization of their high growth rate in the market. In other terms, the two organizations have set in place strategic planning and mechanism that ensures there is adequate inflow and outflow of resources. Verizon has been in a best position to increase its growth rate due to its ability to settle its short term and long terms debt. According to the annual report of 2014, it is evident that liquidity of the company is stable to determine appropriate ways of monitoring the finance of its operations. Verizon has enabled interested investors to economically and conveniently participant in shares ownership and stock purchase. It has established a direct plan for purchasing stock from the company. One of the capital structure adopted by the organization is setting up an initial enrollment plan for unregistered or interested shareowners. In other words, it gives them an opportunity to invest $250 or rather making $50 down payment on monthly basis.
The above table serves as a fundamental element in the cost of equity program. It assists the decision-making body to establish the trading value of the organization’s stock corresponding to the dividend to be paid. Basing upon the stock exchange analysis of 2014, Verizon indicates a share appreciate index. It implies that there has to be a well establish structure that would enable a smooth and convenient combination of the share appreciation and the dividends (Matsa, 2010).
According the BT group annual financial analysis of 2014, it shows that the organization has incorporated a convenient management system that advocates for the establishment of a well-defined capital structure. The capital structure for 2014 includes a stable stock exchange and shares distribution across the global. The company marketing term has been able to generate adequate revenue from the high sales volumes of its products. The organization activities in the stock exchange platform have enabled it to expand it coverage through of selling more share. It thus implies that the company increases its liquidity ratio. BT participant in the stock exchange has yield high shares to the stakeholder. Therefore, it is in a better positive to finance all its operation across the telecommunication industry (Kundakchyan & Zulfakarova, 2014).
The initial capital of the company was evenly distributed to cater for most of the operations. The source use to acquire the funds for smooth operation includes, sale of shares, dividend and the retained earnings. The above table shows the capital expenditure for the march 2014. It is whereby the organization minimized the cost of capital expenditure to allow room for acquisition of more funds. The table indicates that the intangible asset along with the PPE sums up to the total expenditure for the organization within the given time (Verizon, 2015).
Both Verizon and BT use earnings per share to generate funds to finances the day-to-day operations. According to the earning per shares analysis, it shows that weight average of the share for both companies positively contributes to the capital of the organizations. It gives enough funds to ensure smooth flow of activities. During the given period, Verizon recorded high earning per shares thus implying that the company has a higher capacity to settle both long and short term debts. The earning per shares serves a convenient source of the fund because it guarantees the organization the high liquidity ratio and cost per equity (Gropp & Heider, 2010).
The two companies, BT and Verizon both located in the United Kingdom are competitive organizations in the communications sector. Through the combination and debt, the two companies’ finances their assets. According to the pioneering research by Modigliani-Miller (1958), the perfect market allows firms and individuals to borrow at the same interest rates. Their argument state the fact that a company's values in most cases stands out as an independent variable of the company’s capital structure. In real market situation, there exists no such market. In such a situation, capital structure is essential when a company’s performance is examined from finance perceptive. The value of both two firms depends on their expected earnings hence this structure decision has the power to affect both firms either by changing the targeted earning of the firm and reside earning of the stakeholders.
BT Company clearly indicates the efficiency of their capital structure. With the aim of maximizing the share holder’s wealth, the BT Company has been able to generate substantial capital without changing the business. Despite the good capital structure analysis of the above company, there exist certain factors influencing the business. They include; leverage that is the utilization of fixed charges of funds like debentures and preference shares. In addition, Equity/debt ratio affects the BT Company. It indicates the relative proportions of capital contribution by creditors and shareholders.
Over the five year time, it is clearly evident that both organizations have the adequate proportion of capital that would enable them to settle it debts. In other terms, the equity available for fund all expense associated with the assets is proportion. The financial reports show that there is an increase in the capital structure across the five years. Lender and creditors of the two organizations have ascertained that their liquidity ratios are convenient for funding. The organizations have initiated different ways of raising funds for catering for their debt and operations. The capital structure of Verizon provides a good image for the company’s credibility to its all lenders. On the hand, BT has a slightly predictable history to its debtors in terms debts and assets. The debt to equity of both BT and Verizon are catastrophic in the sense that they lack sufficient assets to set off their pending loans (Zeitun & Tian, 2014).
On 2010, both Verizon and BT report an annual capital expenditure proportion to its debt. The trends changes across the other year thus increasing organizations’ credit limit and liquidity ratio. The increase in capacity of settling the debt or rather the increase of assets correspondingly to the liability has played a vital role in determines the organization financial position. The capital structure analysis of the two companies varies depending on the changing trends of their assets (BT Plc, 2015). Verizon is believed to have assets exceed the debt. Therefore, the company’s debt to equity ratio is more reliable as compared to that of BT group. The acquisitions or the availability of the equity share and other sources of funds help in identifying the capital structure of the two organizations. For instance in 2013, the variances of earnings per shares for the two organizations were slightly low as compared to that of 2012. The trend serves as a tool to indicate the changes taking place in the capital structure 0f the two organizations. It evaluates the capacity of both BT and Verizon to liquidate its shares or uses its debenture in the settling of both their long and short terms debt. Availability of a well-defined structure has enhanced the process of establish or realization of the current capital structure of the two organization.
BT Plc. (n.d.). Retrieved April 10, 2015.
Internet, TV and Phone | Compare FiOS to Cable | Verizon. (n.d.). Retrieved April 10, 2015.
Gropp, R., & Heider, F. (2010). The Determinants of Bank Capital Structure*.Review of Finance
Rauh, J. D., & Sufi, A. (2010). Capital structure and debt structure. Review of Financial Studies,
Matsa, D. A. (2010). Capital structure as a strategic variable: Evidence from collective bargaining. The Journal of Finance, 65(3), 1197-1232.
Robb, A. M., & Robinson, D. T. (2012). The capital structure decisions of new firms. Review of Financial Studies.
Zeitun, R., & Tian, G. G. (2014). Capital structure and corporate performance: evidence from Jordan. Australasian Accounting Business & Finance Journal, Forthcoming.
Kundakchyan, R. M., & Zulfakarova, L. F. (2014). Current issues of optimal capital structure based on forecasting financial performance of the company.Life Science Journal, 11(6s), 368-371.
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