Comparison of Research Designs on the Capital Structure of Cadbury plc - Case Study Example

Lecturer Comparison of Research Designs on the Capital Structure of Cadbury plc The paper discusses two research designs that are applied in the analysis of the capital structure of Cadbury. Cadbury is a global confectionery corporation. The British company is owned by the Mondelez international (Bradley 2008). After Wrigley’s it is the second biggest confectionery brand internationally. The headquarters of the company is based in London, and it has operational branches in 50 countries. The products of the company include; Roses selection box, Dairy milk chocolate, and also the Crème egg (Cadbury 2010). Research will be conducted on the capital structure of Cadbury, based on two research designs. Capital structure of a corporation illustrates the integration of; long term debts, preferred equity, common equity, and short term debts. The capital structure explains how corporations finance general operations and growth through utilizing diverse fund sources. Debt is mainly illustrated through; bond issues, long term notes payable (Myers & Nicholas 2014). Equity is illustrated through; retained earnings, common stock, and the preferred stock. Short term debt like working capital is also viewed as a component of the capital structure. The capital structure of Cadbury, therefore, illustrates how the company fiancés its operations and development projects. The paper discusses the research design types. These research design types are; descriptive research design with a focus on case study, and the review research design with concentration on literature review (Robson 2003). Thus, the capital structure of Cadbury will be analyzed based on the case study research design, and the literature review research design (Ader 2008). The most appropriate research design will then be identified, based on comparison of the two research approaches (Bell 2009). The research has one main question. The question is: Analyze the capital structure of Cadbury. This research questions generates several research objectives and also research hypothesis (Creswell 2012). The research objectives are: 1. To provide a general overview of Cadbury capital structure 2. To illustrate the borrowing level of the company 3. To understand the contractual obligations of the company 4. To understand the cash flow of Cadbury 5. To study the capital expenditure of the company The research hypothesis for the research study entails: 1. Cadbury has effective financial risk management strategies 2. The company has adequate short and long term financing options Case Study Research Design The case study design approach illustrates detailed analysis of the study subject, and the associated contextual conditions (Baskarada 2014). Case study is the empirical inquiry that analyses a phenomenon through the real life context (Baxter & Jack 2008). Case study on Cadbury was conducted on 4th and 5th May 2015. The study was conducted at a suitable venue, in the finance offices of the headquarters. The main source of information for the case study was the interview method. Two key finance staffs were contacted to provide adequate information on the company, with emphasis of the capital structure trends over the recent years. Thus, the case study utilized primary sources of research data, through the interviews session (Dul 2008). The study is also descriptive, because it illustrates the financial position of the company. The capital structure information gives company stakeholders the general overview of the funding sources of the company. Adequate authorization was sought from both university authorities and the company authorities, to conduct the case study (Hanke 2009). Permission was also sought from the two respondents who participated in the study. The research ethics was adhered to in the areas of confidentiality (Eisenhardt 2009). The information collected through the case study must only be used for academic purposes, and not any other activities. The respondents were also informed that their anonymity will be ensured (George 2014) through using the initials of their names during the case study processes. The cases study applied quantitative analysis approach, due to the numerical data analysis involved (Gerring 2011). Analyzing the financial statement and thus the capital structure, takes into consideration various numeric factors and financial information. The data analysis is also conducted through analysis of the financial measures and ratios. The results of the case study adequately addressed the research questions. The capital structure was effectively explained by the two respondents. In the 2014 trading period the company made total revenue of 11,346,002,000 pounds and the resultant net income was 447,545,760 pounds (Severin 2010). On May 2, 2008 the Cadbury plc had the ordinary shares registered at the New York Stock Exchange and also the London Stock Exchange. In 2014, the market capitalization of the company reduced from13.1 billion pounds to around 8.2 billion pounds. The reason for this entails the demerger illustrated in the Americas beverage sector, which resulted in the loss of 3.5 billion ponds, and the huge reduction in equity values in 2008 (MacAlister 2009). The net debt reduced from 3,219 million pounds in 2013, to 1,887 million pounds in 2014. This was the effect of the debt repaid after the demerger in the Americas beverages sector. The respondents also illustrated the borrowing levels of the company. During 2014, the total borrowings were illustrated as 2,385 pounds, in comparison to the 3,714 million pounds for 2013. The cash and cash equivalents reduced to 251 million pounds in 2014, when compared to the value of 493 million pounds in 2013. The short term investments rose from 2 million pounds in 2013 to 247 million pounds as at 2014. This decline is mainly illustrated through the demerger of the Americas beverage business. (Richardson 2010) The respondents illustrated the contractual obligations of Cadbury. A total of 682 million pounds in bank loans and overdrafts were settled as at December 31, 2014 (Andrejczak 2010). The trade payables that were settled amounted to 911 million pounds, and the approximate interest payments settled amounted to 268 million (Hendry 2009). The finance leases were valued at 2 million pounds. Cadbury illustrates sound cash flows. In 2914, the cash flow value was 124 million pounds, and this illustrated a reduction in 403 million pounds (Chris 2010). The capital expenditure of Cadbury is effectively discussed by the respondents. The 2014 capital expenditure totaled 500 million pounds, and this illustrates an increase of 22% from the 2013 expenditure levels. The key areas that drove expenditure involves enhanced financial investments in production systems, especially in the Europe gum capacity, and the UK chocolate production. The case study effectively showed that Cadbury has adequate financing options and risk management strategies (Dixon 2007). Literature Review Research Design The literature review research design entails usage of the existing knowledge, substantive results, methodological contributions, and theoretical aspects, to understand the research topic and also adequately address the research questions and hypothesis (Cooper 2008). The systematic literature review was thus applied in the study on capital structure of companies, with a focus on the Cadbury plc. The research review on capital structure of Cadbury plc was also conducted on 4th and 5th May, 2015. Literary information was obtained from scholarly journals, in the internet professional databases (Creswell 2007). The scholarly journals provided the required information that was used to answer the research topic and address the research questions (Dellinger 2007). Systematic literature review is an effective research design approach due to the efficiency and effectiveness involved in terms of minimal time requirements, minimal resource usage, and also voluminous information available on the issue of capital structure and also financial statements of Cadbury plc. (Dellinger 2007) The literature review adequately addressed the hypothesis on effective risk management approaches. Cadbury is continuously exposed to the credit losses resulting from non-performance of the counterparties in the financial instruments. The credit risk is effectively addressed through effectively selecting only the financial counterparties that possess high levels of credit ratings. The company is exposed to approximately 2,185 million pounds, according to the exposure on the funding guarantees that have been issued, in relation to corporate borrowings and subsidiary undertakings that represent the maximum credit exposure. The systematic review also illustrates the financing options available to Cadbury, as part of addressing the research hypothesis. The funding options include; long term loans from financial institutions, short term credit facilities, and the equity markets (Vuong 2014). The literature review addresses all aspects of research questions (Galvan 2009). It illustrates the capital structure of the company. The main source of operation and development financing is the equity market, because of the millions of pounds in value of the ordinary and preference shareholding. The borrowing level of the company in 2014 stood at 1,887 million pounds in net debts. The company also has several contractual obligations as illustrated by the systematic literature review. Purchase obligations are one of the obligations, and it was valued at 535 million pounds in 2014. Cadbury has sound financial flow, as explained by the financial statements. The cash inflows are more than the cash outflows, and thus the company generates revenues and profits (Baker 2012). The two research designs are effective in analyzing the capital structure of corporations like Cadbury plc. However, the systematic literature review is the most superior research design approach. This is because it ensures access to credible information sources from various scholarly journals (Green & Johnson 2006). The information is scholarly because they have been reviewed by a team of experts in the areas of finance and research. The information from systematic literature review is also readily available, especially from professional internet databases (Hart 2008). 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