Essay about Evaluating A Company's Capital Structure
1000 Words4 Pages
For any company, the ability to meet its short-term and long-term financial goals is an essential factor in maintaining its operations and ensuring future growth. A company evaluation at regular time intervals helps to check its financial health, its capital structure and its potential to attract investors.
You can also evaluate company by assessing its capital structure and its potential to attract stock investors. A strong balance sheet is one of the most important things that stock investors consider before investing in the company’s stock. A balance sheet’s strength can be measured in three categories:
• Working capital adequacy
• Capital structure
• Asset performance
This article will show you how to evaluate company by…show more content…
You can make use of three different ratios to evaluate company and measure its financial strength. Two of the ratios viz. debt and debt-equity ratios are very common measurements. The third one, capitalization ratio, gives a proper insight in evaluating the company’s capital structure.
• Debt ratio helps in comparing total assets and total liabilities. If you have more liabilities it means you have lesser equity and therefore an increased leverage position.
• Debt-equity ratio compares total liabilities to the total equity of shareholders.
• The capitalization ratio compares the debt portion of the company’s capital structure and the equity part and is expressed in percentage terms. While evaluating company, keep in mind that a lower percentage means a healthy equity and is more desirable.
Testing the strength of the balance sheet
• The balance sheet of a company reflects exactly what a company owns and what it owes to others, making it a very important thing to be considered for stock investment.
• It can be evaluated in three broad categories namely asset performance, working capital adequacy and the capitalization structure.
Cash Conversion Cycle (CCC)
• This measures the adequacy of the company’s working capital position and is as important as measuring the company’s ability to manage its two important assets, inventory and accounts receivable, efficiently.
Google Capital Structure Analysis Essay
2081 WordsAug 21st, 20129 Pages
UNIT 5: FINAL PROJECT ASSIGNMENT (Complete)
CAPITAL STRUCTURE ANALYSIS -
GB550: Financial Management
Prof. Dale Prondzinski
MBA Candidate | Class of 2012i iiiiii
Graduate School of Business | Kaplan University Online I fiii iand Management| GB540i fi iiiiiiiiiiiiiiii
Apr 6, 2012
Jason’s Portfolio Note on April 16, 2012:
The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening…show more content…
Many analysts would note that based on the consensus of the world population, the company’s equity is of the highest value as they are currently ranked as industry leader in market capitalization (source: Yahoo Finance) which conveniently brings me to my next evaluation.
1.1 Capital Structure
As much as market cap measures to what’s related to the company’s equity value, a firm’s decision based on its capital structure estimates more significantly to how the value of that company is allocated not only for the return on equity but accounting for debt as well. Most economists would refer to capital structure as the mix of a company’s long-term debt, the current portion of it, and of common and preferred stock. Furthermore, large tech-companies today have been taking advantage of capital structure optimizations as it is placed shoulder to shoulder to increasing return on equity thus lowering weighted average costs of capital for long-term investment. In other words, it is how a corporate manager should base his/her decisions on financing the company’s assets and operations through various growth prospects and forecast estimates. We will begin to further evaluate the composition of Google’s capital structure by focusing on the company’s key statistics and research data from the selected top online providers of financial statements, including Google!