Google Capital Structure Analysis Essay

Finding the perfect capital structure in terms of risk and reward can ensure a company meets shareholder expectations and protects a firm in times of recession. Capital structure refers to how a business puts its money to “work”. The two forms of capital structure are equity capital and debt capital. Both have their benefits and limitations. Striking that perfect balance between the two can mean the difference between thriving versus trying to survive.

The capital structure decision is important for any business organizations. The capital structure is essential because it maximize returns, and its impact, such a decision has on the firm’s power to deal with its competitive environment. The capital structure of organization is a mixture of different securities….

The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).

Apple is still the world's largest company financially according to Google’s recent earnings report. Apple has a $521.3 billion market funding, as of Feb. 5, 2016. Now, I will like to analyze the importance of Apple debt ratios. Apple increases its capital return program in 2015 with the hopes of returning $200 billion to its investors by March 2017, from that Apple’s debt offerings is now over $55 billion as of September 2015. Appropriate measurements in finding Apple's debt include the debt-to-equity, debt, cash flow-to-debt and capitalization ratios. The debt ratio indicates a company's degree of advantage, which is calculated by dividing its total debt by its total assets during an accounting period. A high debt to equity ratio

What do you think about the capital structure policies Diageo has pursued in the past. Do they make sense? How does it compare to Diageo’s competitors’ policies? Which competitors would make for the best comparison? (40%)

This paper will justify the current market price of Google’s debt and equity, using various capital valuation models. Calculations to support the finding will be detailed, including those involving rates of return. The valuation model that best supports the finding will also be detailed and defended in this paper.

The theorem is the foundation of today’s corporate finance. Capital structure of a company is the way a company finances its assets. A company can finance its operations by either debt or equity, or different combinations of these two sources. Capital structure of a company can have majority of debt components or majority of equity, only one of the two components or an equal mix of both debt and equity (Modigliani and miller, 1953)

Working capital is the amount that a company’s current assets exceeds its current liabilities and is a measure of the company’s ability to pay its debts and liabilities if they were to all become due in the near future. Assets and liabilities are considered “current” if the asset is able to be converted into cash within one year and if the liability must be paid within one year (Bagul, 2014). Both Google (now Alphabet) and Microsoft hold working capital in sums that significantly exceed $50 million dollars, $61 million and $74 million respectively. These large sums are on account of the fact that both companies hold higher than normal levels of cash and investments (securities) when compared to most large corporations. While there is no set goal for how much working capital a company should hold, these numbers provide us with two clear conclusions. First, neither Google nor Microsoft currently have any risk of not being able to pay their debts on the short-term horizon because they have way more than enough current assets to cover even the most dramatic call of their debts. On the other hand, this high amount of working capital shows that the company could be investing its assets in a more efficient manner, rather than allowing them to sit unutilized.

ABSTRACT This paper is a review of the central theoretical literature. The most important arguments for what could determine capital structure is the pecking order theory and the static trade off theory. These two theories are reviewed, but neither of them provides a complete description of the situation and why some firms prefer equity and others debt under different circumstances. The paper is ended by a summary where the option price paradigm is proposed as a comprehensible model that can augment most partial arguments. The capital structure and corporate finance literature is filled with different models, but few, if any give a complete picture.

Consider an online ad campaign run by an advertiser. The ad serving companies that handle such campaigns record users’ behavior that leads to impressions of campaign ads, as well as users’ responses to such impressions. This is summarized and reported to the advertisers to help them evaluate the performance of their campaigns and make better budget

Choosing the right sources of capital is a decision that will influence a company for a very long time. In 1996, the Hutchison Whampoa company is in dire need of considerable funds in order to finance their long term projects. In fact, investment analysts estimated that the company would require a minimum of US$500 million of new capital in the coming year and would face large ongoing capital needs if the firm was to remain on the growth trajectory established in recent years (Hutchison Whampoa Limited: The Capital Structure Decision, 1999).

Potential investors can provide capital in two broad forms - providing either equity or debt to the firm. Equity investors look to buy a firm’s shares, and in return, expect to gain dividends and an increase in share price. Equity providers are primarily concerned with information pertaining to “the amount, timing and risk of future cash flow” (Cascino et al, 2013). On the other hand, debt providers are concerned with information related to the financial stability of a firm to ensure the firm can continue it’s debt repayments.

Capital structure is the combination of debt and equity used to finance a firm, though a firm may only use debt or only equity to finance. A firm cost of capital is least when it can use optimal capital structure. Optimal capital structure is the one that strikes a balance between risk and return to achieve ultimate goal of maximizing the price of the stock. Business risk and financial risk are related with a firm’s capital structure. Business risk is defined as the uncertainty inherent in projections of future returns, either on assets or on equity (ROE), if the firm uses no debt.

We next took a look and analyzed Nike’s capital structure and solvency. The capital structure and solvency data is used to show how a firm finances its overall operations and growth by using different sources of investments. Examples of different forms of debt are bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. As analysts we use the capital structure and solvency data to see the possible risk factors in investing in a particular company. A change in the company’s capital structure is measured using various analyses’ and comparisons. Nike’s capital structure for the six years ending in 2016 is portrayed in Exhibit L. The common-size analysis of capital structure is shown in Exhibit M. In year 2016, equity made up 57% and liabilities made up 43% of Nike’s financing.

After vast discussion optimal capital structure still under conversation exploration toward the finalization still exist under both theories of capital structure. The remaining parts of the paper are as follows: Section 2 presents a literature review; Section 3 describes the data, the methods utilized; Section 4 analyzes the results obtained; Section 5 presents the conclusions; and Section 6 describes the recommendation; and section 7 describes references.