Question

• What is the latest mix of long-term debt and equity in the company you selected (Asics)
  • You will find these figures in the balance sheet of your company’s annual report. Alternatively, Google your company’s capital structure by typing Company Name capital structure.
• How does your company’s capital structure compare to the industry standard? Is it above, below, or at the industry standard for capital structure?
• What factors do you believe might have influenced your company’s capital structure? Discuss three of those factors.
• Post must be between 250 and 500 words in length. If citing sources in your post, your writing should follow APA citation guidelines.

Answer 1

The following are the factors influencing Capital Structure decisions:

1. Trading on Equity:

It is a double-edged sword as there is risk associated for the respective returns. It is also called as financial leverage. This is because of the component of debt / equity ratio. If the company is earning sufficient profits with a higher Equity component, it means that the company will be able to supply enough funds as retained earnings after payment of interest, equity and prefernece dividend.

2. Type of Investors:

Some investors may be high risk investors, moderate risk investors and low risk investors. Hence, Capital strusture has to be deigned as per the investor expectation with regard to risk and return.

3. Period of Financing:

This indicates the amount of risk and the time period of return which the investor expects.

4. Market Conditions:

5. Legal Requirements

6. Stability of Sales