Financial management analysis - Essay Example

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Capital structure of a business firm can affect the value of the firm through its impact either on the expected income or the cost of capital or both of the concerned…
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Download file to see previous pages The loan taken by the company is paid back at some future specified date. The interest at which the debt financing is done is called the cost of debt Emmanuel (2012). In debt financing full ownership is retained by the company but the company has to repay the sum due on bonds issued or loan taken before repaying the equity investors. A company with high debt-equity ratio means a company which is highly leveraged or highly reared. According to Chandra (2011) the debt-equity ratio or leverage of a business firm influences the cost of capital and simultaneously the value of the firm. In order to form the desired capital structure a business should be based on minimum cost of capital and maximum value possible of the firm. The portion of capital which is raised by sale of shares or stock is known as equity capital. This capital is owned by the shareholders and involves certain level of shareholders expectation on the investment made. In order to retain the shareholder investment it is very important to ensure return in the form of dividend and appreciation in share price. According to Wiley (2007) the risk of the shareholders is comparatively more than the debt-holders; however, in equity financing a distribution in ownership takes place. A company has two primary sources to raise its capital: debt and equity. According to Graham (2012) to measure the cost of capital of a firm, WACC technique is used. This technique allows the company to determine the accurate cost of financing of any project by allocating suitable weightage to the different sources of finance available .
Walmart Stores Inc. is one of the old and renowned names in the retail industry that has been serving the nation with different retail structures like cash and carry stores, supercenters, apparel stores, bodegas, small discount stores, food and drugs, general merchandise stores and restaurants. The company is committed to serve the ...Download file to see next pagesRead More
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