Capital structure and payout policy Term Paper Example | Topics and Well Written Essays - 1250 words

Capital structure and payout policy - Term Paper Example 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 o pen 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 e quity. 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

Management accounting Assignment Example | Topics and Well Written Essays - 2500 words

Management accounting - Assignment Example Taking into account the advice given out by the proposals of the Function Managers there is a need for a partial overhaul of the companies working practice and corresponding adjustments need to be made to its business model with an overall aim of ensuring as smooth a transition as possible in the aftermath of the acquisition of the company by MAJORAIR. What should also be considered by the board is the long-term strategy of what market should be the focus in terms of both location (established versus expanding) and passenger type (low cost versus high end and discerning), as well as the risks posed by each of these approaches. In regards to the accounts for the season Winter 2011/12 Overall profitability for the season stands at ?148,201,205 It will be important to benchmark the overall profitability of the proposals against this figure to establish which offer would be the most attractive to the company. Another important figure to look at would be at which moment in the season the proposals meet the breakeven mark. There are two ways of looking at this figure. One is to look at which moment in time the costs are covered by simply deducting overall costs against turnover as a point in time (for example: costs are covered between months 3 & 4 and from that point on all revenue can be considered as profit.) Another is to deduct what percentage of each sale is allocated to cover the costs spread out over the entire season or year. Figures for the yearly turnover are not calculated in this analysis because of the uncertainty of passenger numbers for the summer months. In regards to Load Factor there is some room for improvement Gatwick – Washington (AM) – 77.97% Load Capacity (55.14% of total available seats) Gatwick – Washington (PM) – 88.44% Load Capacity (28.26 of total available seats) Gatwick – Boston (AM) – 79.44% Load Capacity (57.9% of total available seats) Gatwick – Boston (PM) – 84.5% Load Capacity (50.88% of total available seats) Gatwick – Seattle (AM) – 55.78% Load Capacity (34% of total available seats) Gatwick – Seattle (PM) – 77.57% Load Capacity (63.16% of total available seats) As the accounts stand there is a surplus that can be reinvested or paid out to shareholders as part of a dividend but before either of these can occur I will be analysing the proposals set by the Functional Managers in regards to an investment strategy. Some of them are long-term investments, several of them are speculative and some of them deal with short-term fixes. I will be assessing them on immediate changes to profitability, projected impacts of capital expenditure feedback (for both the immediate fiscal year and for long-term cost reductions through investments) and what impact each proposal has on the current business practice used by SMALLAIR. Network Management In the first instance, this is the proposal I would want to present to the board as I agree with the recommendations of the proposal in a number of ways. Firstly, the Washington PM flight is the most efficient at load