Question

Research publicly traded companies and select two companies in different sectors. Provide a written comparison of the capital structure for each. Explain your conclusions on the similarities and differences. What factors can you suggest for why each company adheres to their chosen structuring mechanism?

Answer 1

The Publicly traded companies taken for research are International Business Machine ( IBM ) and Signet Jewelers Limited (SIG). The first company deals with IT ,computer technology and software with market capitalization of 118.495 B. The other company deals with  jewelry, watches and associated services as an organized retailer with market capitalization of 620.552 M.

The capital structure of these two companies as per financial record as of 2018 ,

Capital Structure	SIG	IBM
Total Debt to Total Equity	60.62	272.76
Total Debt to Total Capital	28.62	73.17
Total Debt to Total Assets	16.48	37.13
Long-Term Debt to Equity	54.06	211.98
Long-Term Debt to Total Capital	5.52	56.87

Some common point for both companies :

• Used mix of debt and equity to create a optimal capital structure
• Debt has combination of long term and short term
• Both companies have high leverage , more than 50 times

Some differences are:

• IBM is highly leveraged company , but due to the high volume  of business company is capable to pay the interest obligation.
• SIG has only 5.52 Long term to Total capital ratio in comparison of 56.87 in IBM , which may impact the net profit margin and return of equity for the company.
• The reflection of capital structure may found by data of profitability for equity holders,

• 	SIG	IBM
  Return on Equity	-26.67	50.73

• IBM is generating positive income of shareholders , while SIG has negative income for shareholders.

Suggestions:

The companies are dealing in two different segments and industry , but they are bound to generate profit for shareholders for sustainable business model in long run. SIG should try to structure its capital to give advantage to shareholders.