FIN501 MODULE 4 SLP

Capital Structure Decision and the Cost of Capital



Capital Structure Decision and the Cost of Capital

Wal-Mart

The value of Long term Liability is US $ 43,842,000; on the other hand the value of the short term Liabilities for the Wal-Mart Inc., for the year 2011, is US $ 6,022,000. The Market Capitalization for the Wal-Mart, Inc. is US $ 208.13 Billion.

Wal-Mart Debt Management Ratios for the Year 2011

LT Debt to Equity0.64

Total Debt to Equity0.73

Interest Coverage12.75

Sears Holding Corporation's Debt Management Ratios for the Year 2011

LT Debt to Equity0.49

Total Debt to Equity0.82

Target Corporation's Debt Management Ratios for the Year 2011

LT Debt to Equity1.01

Total Debt to Equity1.02

Interest Coverage6.94

Interpretation

The Debt-to-Equity ratio of the organization is a measure of financial leverage liabilities societies divided by equity. It shows how much of equity and debt the company uses to finance its assets.

Of the three companies target company has the highest debt ratio, while Wal-Mart is the lowest debt to equity. A high debt / equity ratio generally means that the company was funded by the aggressive growth and debt. This can lead to volatile earnings due to additional interest expense.

If a lot of debt to finance the debt growth (high capital), the company can generate more revenue than it would have been no external funding. If this were to increase operating income by an amount greater than the cost (interest rates), the shareholder will be more action in the same number of shareholders. However, the cost of borrowing may be greater than the profitability of the company provides investment and corporate debt and too much social control. This can lead to bankruptcy, where a shareholder.

Debt / equity, by industry, which the company operates. For example, in the capital-intensive industries such as automotive manufacturing, as a rule, the debt / equity is greater ...