Nobody downloaded yet

Capital structure and payout policy - Term Paper Example

Comments (0) Cite this document
Summary
Executive summary This report is about the capital structure and payout policy of Starbucks Corporation, an international company that deals with coffee products. The report shows the considerations that the company’s management should make in order to establish the optimal capital structure…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.3% of users find it useful
Capital structure and payout policy
Read TextPreview

Extract of sample "Capital structure and payout policy"

Download file to see previous pages Introduction Background Starbucks Corporation is an international company that deals with coffee products, with its headquarters based in Seattle Washington, America. During its commencement in 1971, the company was a retailer and a local coffee roaster; but it has since stretched out swiftly. It has Italian-style coffeehouse chain and it is the world’s largest coffeehouse company, with presence in more than 60 countries and more than 20,000 stores (Starbucks Corporation 2011 3). It deals with coffee beans, salads, hot and cold drinks, hot and cold sandwiches, snacks, mugs and tumblers, and sweet pastries. In addition, Starbucks distributes some of its brand through grocery stores, including coffee and ice cream. Its other products include markets films, music, and books through the Hear Music and the Starbucks Entertainment division. Scores of the company’s products are either location specific or seasonal. Starbuck’s most remarkable expansion, when it used to open new stores days on end, was in the 1990s till 2000s. The company started establishing oversees stores in 1990s; and currently, roughly third of its stores are oversees (Starbucks 2). Identification of problem Starbucks mainly obtain its capital from equity and debt sources. However, the company must struggle to strike a good balance between equity and debt; because, if it uses too much debt, then it may be obligated to pay too much interest and subject it to the risk of bankruptcy. Furthermore, such a scenario could limit its payout capability, hence keeping away investors, which again limits its shareholding capability. Therefore, it is important to analyze the company’s capital structure, as it plays a crucial role in regards to its dividend payout, risk of bankruptcy among other issues. Analysis of issues Capital structure means the manner in which a particular company combines its sources of capital, which are used to finance its long-term assets, including debt and equity. Gearing or leverages is used to measure the proportion of the company’s debt capital. However, the company’s capital structure is affected by a number of factors, and the optimal financing mix should be its target. Difficulty, however, arises, in trying to establish the exact optimal capital structure, since this process is not a science. In order for Starbuck to establish its optimal capital structure, it has to give consideration to all the factors that are believed to play some crucial role in establishing an optimal mix. In addition, it is important to consider the fact that a trade-off between return and risk has a strong impact on the capital structure. In other words, this means that excessive debt will increase the company’s earnings risk, though this will lead to higher potential returns. Furthermore, if the company maintains high debt capital, the stock price will decline due to the higher risk related to high level of debts. On the other hand, the stock becomes more attractive to the investors, if it has a high potential of returns, which will again send the stock’s prices upwards. As such, the optimal capital structure for Starbuck is the one that establishes a balance between return and risk, hence helping attain its overall goal of maximizing the prices of its stock. It is, therefore, very crucial for the management of Starbuck to ensure it maintains the lowest cost of capital and at the same time maximizes the shareholder’s wealth. Capital structure i ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Capital structure and payout policy Term Paper Example | Topics and Well Written Essays - 1250 words”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1461538-capital-structure-and-payout-policy
(Capital Structure and Payout Policy Term Paper Example | Topics and Well Written Essays - 1250 Words)
https://studentshare.org/finance-accounting/1461538-capital-structure-and-payout-policy.
“Capital Structure and Payout Policy Term Paper Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.org/finance-accounting/1461538-capital-structure-and-payout-policy.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Capital structure and payout policy

Capital structure analysis

...?Capital Structure Analysis Table of Contents Problem 28 3 Prob. a) 4 Prob. b) 5 Prob. c) 5 Prob. d) 5 References 7 Bibliography 7 Problem 28 Info Systems Technology (IST) is a manufacturer of microprocessor chips. The company has 100 million shares outstanding and no debt. Now, IST is supposed to raise capital worth $500 million in order to build a fresh production facility. In the occurrence of a financial distress, the company would experience a great loss of both consumers as well as engineering talents. If IST takes a debt of $500 million, the managers of the company are afraid that the present value of the cost of financial distress would be more than the tax benefits by an amount...
3 Pages(750 words)Math Problem

Corporate Valuation, Capital Structure and Dividend policy

...? Capital Structure and Dividend Policy Capital Structure and Dividend Policy Introduction For the purpose of this report, two companies have been chosen - Limited Brands Inc. and News Corporation. Limited Brand Inc. is a worldwide company which sells lingerie, personal care and beauty products as well as apparel and other accessories. The company has more than 2,600 stores operating in the US. Limited Brands is also selling its products through more than 680 companies worldwide (Limited Brands Inc, 2013). News Corporation is one of the top television groups in the world. Its business includes the best broadcasting company of United...
8 Pages(2000 words)Essay

The Signalling theory

..., which are dependable. For example, in making decisions, employers and managers rely on the information they obtain from the signals they receive. For instance, in making decisions about capital structures and payout policies, a manager would rely on the existing arrangement and try to evaluate its effectiveness before deciding on the next step (Chang & Hong 2000). Signals according to the theory can be categorized into assessment and conventional signals. The assessment signals denote the signals that are reliable; that is, they are signals that tend to restrict individuals who do not pose the quality required by the signal from using it. For example, if a manager...
7 Pages(1750 words)Essay

Capital Structure

...as the latter would like to continue with long term interest payments. Hence, the creditors will tend to establish certain terms of agreement that indirectly impacts the dividend policy of the management thus affecting the capital structure of the organization as non-payment of dividends may end up reducing shareholder interest and hence can reduce equity financing. Another factor that affects the Capital Structure is the rate regulation by regulatory commissions. Spiegal and Spulber (1994. pp424-425) proved that rate regulations generates an incentive for the regulated firms to increase their debt levels. Thus regulated firms tend to have high...
6 Pages(1500 words)Essay

Capital Structure and Dividend Policy Theory

...of capital structure on profitability: an empirical analysis of listed firms in Ghana,' The Journal of Risk Finance, vol.6, no.5, pp. 438-445. 3. Capital Structure Definition, Retrieved from www.investorwords.com on February 08, 2010. 4. Chun, C 1993, 'Payout Policy, Capital Structure, and Compensation Contracts When Managers Value Control', Review of Financial Studies, vol.6, no.4, pp.911-933. 5. Damodaran, A 1997, Corporate Finance: Theory and Practice, John Wiley & Sons, Inc, New York. 6. Easy jet Financial Report 2006, Retrieved from www.easyjet.com on February 08, 2010. 7. Friedrich, B...
12 Pages(3000 words)Essay

The Capital Structure

...) REFERENCES BURTON, B. M., & POWER, D. M. (2003). Evidence on the determinants of equity issue method in the UK. Applied Financial Economics. 13, 145-157. DeAngelo, Harry, and Linda DeAngelo, 2006, , payout policy, and financial flexibility,Working paper, University of Southern California. DIERKENS, N. (1988). A discussion of exact measures of information asymmetry: the example of Myers and Majluf model or the importance of the asset structure of the firm. Fontainebleau, France, INSEAD Faulkender, Michael, and Mitchell Petersen, 2006, Does the source of capital affect capital structure? Review of Financial Studies. Frank, Murray Z., and Vidhan K. Goyal, 2003, Testing the pecking order theory of capital structure, Journal... ) The...
8 Pages(2000 words)Essay

Using theoretical and empirical evidence, critically discuss how signalling theory explains a managers decision to change capital structure and payout policy. Analyse how the stock market responds to the decisions

...capital structure and payout policy. How stock markets actually react to these decisions will also be discussed. Signaling Theory This theory, in its basic form, stipulates that the changes in the dividend policy actually convey the information to the investors about changes in the future cash flows of the firm. This suggests a positive relationship between the information asymmetry and dividend policy of the firm. It outlines that if the overall information asymmetry is higher, the sensitivity of the dividends to the future prospects of the firm increases. The overall assumptions of this theory are based upon game theory suggesting...
6 Pages(1500 words)Essay

Corporate Valuation, Capital Structure and Dividend Policy

...Company Analysis Corporate Valuation, Capital Structure and Dividend Policy CompanyAnalysis Corporate Valuation, Capital Structure and Dividend Policy Apply Inc. (Apple) was incorporated on January 3, 1977 and is famous for designing, manufacturing and marketing of media devices, personal computers, mobile communications and portable digital music players. They are also responsible for selling a variety of related soft ware’s, peripherals, networking solutions and third party digital content and applications. The product and services of the company include iphone, Mac, Apple TV, Pad and IPod. They have a portfolio of...
11 Pages(2750 words)Book Report/Review

Capital structure

...Capital Structure Capital Structure Decision The capital structure of an organization can be described as the mix of debt and equity that a business has and is an important consideration for any business, while evaluating capital structure, assessment of the overall cost of capital is an important consideration. In terms of decision making over capital items, the weighted cost of capital is usually the sum of the cost of equity as well as the total cost of debt and the cost of preferred stocks with respect to their proportions in the business. Factors...
10 Pages(2500 words)Research Paper

Capital Structure

...Capital Structure In the present competitive scenario, companies are required to conduct business operations with incorporating the aspect of better investment management. In this similar context, I identified that the capital requirement of a firm is dependent on two sources that mainly include equity and debt. Respectively, I conjure that varied capital sources are typically based on different costs and thus, needed appropriate analysis for designing an optimal capital structure for raising required finance appropriately (Grundy, n.d.). In businesses, sources of capital comprise equity and debt, which are used...
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Term Paper on topic Capital structure and payout policy for FREE!

Contact Us