Introduction Every company listed on the Bursa Malaysia has nearly identical objective that is to maximize company’s profit and to maximize shareholders’ wealth. To achieve this, the company must have sound financial planning; good financial decision, and improve profitability which will then increase the value of the firm. In order to obtain success, the company must have a well plan and execution of its capital structure. What is capital structure? Capital structure describes the specific mixture of long-term debt and equity the firm uses to finance its operation and growth. The risk and value of the firm will be affected by this mixture. Hence, it is often a challenging task for the finance managers to determine the optimal capital structure. An error free decision is critical to avoid an incorrect financing decision (Eriotis, Vasilou & Neokosmidi, 2007) and different levels of debt and equity used in capital structure suggest that managers may employ firm-specific strategies for improved performance (Gleason, Mathur, & Mathur, 2000). For this study, we will analyze 2 out of 85 property companies’ (which are listed on Bursa Malaysia) capital structure for the year 2010 and 2011. These two companies are IGB (Ipoh Garden Berhad) and Encorp Berhad. A. IGB (Ipoh Garden Berhad) Company’s Background IGB Corporation Berhad was incorporated on 12 November 1964 and listed in the main market of Bursa Malaysia on 9 October 1981. At the helm of the company is Tan Sri Abu Talib Othman (non-executive Chairman of the Board) and Chung Meng Tan (Group Managing Director and Executive Director). It business address is Level 32, The Gardens South Tower, Penthouse, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur 59200. IGB involves in re... ... middle of paper ... ...sales will erase profit and may result in a net loss. But for both companies, there is no issue in these areas as both are enjoying good sales and continuous property development activities. In term of activity, both companies showed they are efficient in turning their inventory (the number of on-going projects) into sales. For financial leverage, IGB Corporation showed better result than Encorp. This may be due to the less number of activity undertaken by the company as well as the financial consideration for the projects undertaken is not as high as the capital expenditure for projects undertaken by Encorp Berhad for which the projects development are more recent.. In general overall finding of this study showed that both company are financially sound. This is proven through the number of projects and the result of properties sold before the project’s completion.
Finding the perfect capital structure in terms of risk and reward can ensure a company meets shareholder expectations and protects a firm in times of recession. Capital structure refers to how a business puts its money to “work”. The two forms of capital structure are equity capital and debt capital. Both have their benefits and limitations. Striking that perfect balance between the two can mean the difference between thriving versus trying to survive.
... structure of the enterprises should increase. Although J&J have a stagnant debt to equity ratio in the last two years there is an upward trend visible(see appendix).
Does the capital structure of a firm really matter? If so, how and why does it matter? Practitioners and scholars of corporate finance have debated these questions for several years and have found it difficult to come up with definitive answers. The classical work of Modigliani and Miller (1958) provided the impetus for what is now, orthodox corporate finance theory on the optimal capital structure of firms. They postulated that, in a perfect or frictionless capital market, the choice between debt and equity financing has no material effect on the value of the firm. Stern and Chew (2003) noted that following the Modigliani-Miller propositions, academic researchers in the 1960s and 1970s turned their attention to market imperfections that might make firm value depend on capital structure. They further noted that the main suspects were a tax code that encourages debt by making interest payments but not dividends tax-deductible and expected costs of financial distress that rise with increasing amount of debt. Towards the end of the 1970s, they noted, there was also discussion of signalling effects, such as the tendency for stock prices to fall significantly on the announcement of new equity issues and to rise on the news of stock buyouts. These effects seemed to confirm the existence of large information cost that could influence financing choices in the predictable ways.Myers (1984), however, noted that there is a conflict which has existed among the different theories and referred to is as the “capital structure puzzle.” Barclay and Smith (2005) noted that it has been the difficulty of coming up with conclusive tests of the competing theories. Firstly, they noted that model on capital structure typically are less precise than...
Assessing the capital structure of any firm is important for investors attempting to determine if...
These findings show that the company is doing very well. The financial statements look good and the company is profitable considering the industry averages. Therefore, it is recommended that investors consider this company for their investment portfolio.
In terms of financial performance both companies have performed well. This brief review will focus on the financial performance such as profitability, solvency and liquidity.
As Malaysia’s very own national oil company, PETRONAS has grown considerably throughout the years. It has been performing really well financially as their revenues has been steadily increasing every year. Through its financial statements it can be seen that PETRONAS revenue has increased by RM 49,748 million from 2011 to 2012. Besides that, during the FY2012, its Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) and its Cash flow from operations has also increased by 11.1% and 10.32% respectively compared to FY2011. The revenue increased by RM 49,748 million is primarily due to the higher realized prices and favorable exchange rate movements; however the revenue increase was also partl...
Although investments can an essential part of a business, making an investment decision involving risk can be inherent and inescapable. In order for a leader to raise the necessary resources for their corporation, he/she have to be risk-averse. In order to raise capital most companies would use the equity financing method. By using equity financing, a corporation is able to sell shares of their stock to build capital and promise to pay back the investors in the future with interest. Also a leader should consider factors such as the weighted average cost of capital (WACC), tax rate,
Titman, S. and Wessels, R. (1988). The Determinants of Capital Structure Choices. Journal of Finance , Vol. 43.
The companies I have selected for this assignment is Malaysia Steel Works (KL) Bhd (5098) and Kossan Rubber Industries Bhd. (7153), both of the company is from industrial products sector and its share is traded in main market.
In this report is discussed how that is going so far. Comparisons of their finances are made, but we will see what the strengths and weaknesses are and what their impact is on the company.
As financial performance has always been LF’s focus, the managers should come out with measures to enhance profitability. Targets such as growing revenues, profit margin on sales and gross margin should be realistically set. For example, LF can aim to achieve a constant growing profit margin on sales figure on a quarterly basis. If LF meets this target every quarter, it can be interpreted that it is
Based on this analysis, we found out that the ability of this company to generate more money increased dramatically. However, the company is unable to repay all its debts as they do not have enough liquid assets. With this situation, we suggest the shareholder to continue to invest in this company in order to solve their financial problem and getting more profit. However, the shareholders also needs to consider the other aspects like new company regulations or government regulations before making a decision.
It is one of the largest companies on Bursa Malaysia with a market capitalisation of RM57.6 billion (USD 17.4 billion) as at June 2013. It is also listed in the Forbes Magazine’s Global 2000 Leading Companies list at number 598. The company also manages to place number 666 in sales, 588 in profit, 1307 in assets and 658 in market value.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.