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In: Finance

Research publicly traded companies and select two companies in different sectors. Compare the capital structure for...

Research publicly traded companies and select two companies in different sectors.

Compare the capital structure for each and explain your conclusions on the similarities and differences.

What support can you provide for why each company adheres to their chosen structuring mechanisms?

Solutions

Expert Solution

Two publicly traded company would be Apple and Tesla

Apple is having an exposure into the technology space whereas Tesla is an electronic car maker.

Capital structure of Apple is having a very low quantity of debt financing into its overall capital structure and it is heavily funded by equity capital structure, and it can be reflected in its books of accounts because it is having high cash in its own hands, and it does not have periodic debt repayment schedule, as much because it can pay them out of profits easily.

Tesla on the other hand have an appropriate mix of debt capital and equity capital, and it has a higher amount of debt capital in overall capital structure because it believes that it can maximize its profits and growth and in the long run. this debt capital will be helpful because the cost of debt will be lower than the overall return on the capital.

Similarities is that both are companies are exploring the growth opportunities, but Apple is exploring the growth opportunities through cash in its own books, where as Tesla ia going for the debt financing and it is trying to beat the cost of debt through return on capital.

Each company has their own mechanism of dealing with the the capital structure but at the end of the day, if both the companies are successful and able to capitalise on their capital structure and able to generate a rate of return for the shareholders that would be efficient.

jeff jeffy answered 1 year ago
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