Compare the organizational forms of business
Generally, there are three major organizations in market economies, each with specific reasons, stakeholders, and a governing legal framework. The three are: For-profit organizations (businesses or companies). Not-for-profit, non-governmental organizations (non-profits). Governments. Under for-profits or simply businesses, there are three…
Operating Break-even Quantity of Sales
[vsw id=”UO4w5yNuWdw” source=”youtube” width=”611″ height=”344″ autoplay=”no”] The breakeven quantity of sales, or simply breakeven point, indicates the number of units of a company’s product that is produced and sold. At this point, a company’s net income becomes zero. Similarly, we…
DOL, DFL, and DTL
[vsw id=”UO4w5yNuWdw” source=”youtube” width=”611″ height=”344″ autoplay=”no”] The Degree of Operating Leverage, Degree of Financial Leverage, and Degree of Total Leverage are three important ratios that help us to quantify a company’s exposure to operational risk, financial risk, and a combination…
Beta Estimation for Public Companies, thinly traded Companies, and Nonpublic Companies
[vsw id=”HkoJ_nedolg” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Beta is an estimate of a company’s systematic or market-related risk. Estimating Beta for Public Companies For public companies, beta is estimated through ordinary least squares (OLS) regression of returns on a stock on…
Financial Leverage, Net Income, and ROE
[vsw id=”UO4w5yNuWdw” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Financial leverage is the extent to which a company finances its operations using fixed-cost financial obligations such as debt and preferred equity. The more a company uses debt financing, the higher its financial leverage…
Target Capital Structure and WACC
[vsw id=”ZLrxAugcvo8″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] The target capital structure of a company refers to the capital the company is striving to obtain. In other words, target capital structure describes the mix of debt, preferred stock, and common equity expected…
Competing Stakeholder Interest in Capital Structure Decisions
[vsw id=”ZLrxAugcvo8″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Capital structure decisions impact stakeholder groups differently. Increased leverage increases the risk to all stakeholders but only results in a higher return for shareholders. Debt vs. Equity Conflict Debtholders have a contractual and prior…
Company’s Capital Structure over its Life Cycle
[vsw id=”ZLrxAugcvo8″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] The maturity, capital intensity, market position strength, and the stability and nature of a company’s operation are all elements that influence its capital structure and ability to support debt. As a general rule, companies…
Factors Affecting Capital Structure
[vsw id=”ZLrxAugcvo8″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Both internal and external forces influence a corporation’s capital structure, and it varies among countries and sectors. These factors include: $$ \begin{array}{l|l} \textbf { Internal Factors } & \textbf { External Factors } \\…
Effect of Taxes on Cost of Capital
[vsw id=”HkoJ_nedolg” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Taxes significantly impact the weighted average cost of capital (WACC) of a company. However, taxes affect the cost of capital from different sources of capital in different ways. The Effect of Taxes on Debt…
