Object Finance Analysis Forex

The financial structure of a company is appointed by the addition of the components of financing, determining the specific means used by managers to obtain future benefits.

At present, the organizations generally have an obstacle in front that can sometimes be harmful for consolidation and maintenance in the market, this barrier is financing its operating activities, either with their own resources or those of third parties.

In a market as competitive as the one presented at this time, obtain resources is extremely difficult, it is necessary to analyze some of the factors that may become relevant in this analysis to raise capital.

First, state the types of capital that they use the entities, then analyze the structure of the financial capital of the company which is closely linked to its financial situation and its short-term borrowing rates and longer term, additional shall specify the form of measurement of the structure, finishing with the main approaches and theories of analysis for such cases.

CAPITAL IS:

the extent any cash which was deposited in a company, regardless of funding source, the name accounting or business purpose.

CAPITAL

The capital of the companies with the media this means they play in your funds for a permanent time period or long, mostly these are received from two sources:

For contributions of owners consists of all the expenditures in cash, kind or industry carried out indefinitely people who are holding primary rights of the company to its constitution in this sense, their sources of contributions are in common stock, preferred stock and retained earnings from previous periods.

For indebtedness to third parties, which includes any resources obtained by the entity for loans or long-term loans. A company can only use a given amount of debt financing because of the fixed payments associated with it.

These sources of funding have some differences that come to the surface, the first is the requirement or the time when resources are available to the body, while the former are kept permanently, the latter have an expiration date, another is that creditors have no say in decisions made by managers on the operation and activities of the company, but these creditors have priority over income and assets of the company in liquidation.

THE MAIN FORMS OF FINANCING OF THE COMPANY ARE THE DEBT, THE ISSUANCE OF COMMON STOCK AND PREFERRED UTILITIES AND HOLD THE OWNERS

CAPITAL STRUCTURE

The theory of capital structure is deeply associated with the cost of capital of the company, within the studies that have been done on the subject, there are many insights into the “optimal capital structure” without reaching a unified criteria , some defend the idea that you can wound the best, others are convinced however that this is not possible, have only been agreed that should get a good combination of the proceeds in debt, common and preferred shares and equity instruments, with which the company can finance its investments. This goal may change over time as conditions change.

The way to determine the “optimal capital structure is one that maximizes the price of the shares of the company connected with the cost of capital therefore must be minimized.

Factors influencing the decisions of capital structure are primarily business risk that is inherent in the company’s operational activities (higher performance at higher risk), the fiscal position of the company due to interests that are deductible income, the depreciation of fixed assets, amortization of fiscal losses and the amount of the tax rates.

Address the types of risks that arise in business you could say that there are three: operational risk, financial risk and total risk, which are closely linked to the ability of the company.

Operational risk is the risk of not being able to cover operating costs, financial risk is the risk of not being able to cover the financial costs and the total risk is a kind of total leverage. (In subsequent articles delve into this topic.)

APPROACHES:

Traditional
Net income
Operational net profit
Modigliani and Miller

APPROACHES TO CAPITAL STRUCTURE

As guidelines for analyzing the “optimal capital structure” is essentially divided into those who support the theory that the best you can get to consolidate within the company and supporters that this optimum does not exist, then the following approaches have :

The traditional approach:

This approach proposes that the company can reduce its cost of capital and increase the total value by the fair use of leverage, this leads to that the cost of capital is not independent of the capital structure of the company and there is a capital structure optimal.

The net income approach:

In this approach the earnings available to common shareholders are capitalized at a constant rate is computed by dividing net operating earnings of the company between the total values of the company.

A = Net Income
Total Capital

The focus of net operating income:

The assumption for this approach is that there is an overall capitalization of the company for any degree of leverage. The market capitalizes the value of the company as a whole and as a result, the breakdown between debt and equity is irrelevant.

The MM approach:

The thrust of this approach are Franco Modigliani and Merton H. Miller, these in their studies claim that the relationship between leverage and cost of capital is explained by the approach of the net operating income, arguing that the overall risk to all holders of securities of the company is not altered by changes in the capital structure and hence is the same regardless of the financing mix.

This theory proved under a set of restrictive assumptions, that because of the tax deductibility of interest on the debt, the value of a company will increase steadily as they use more debt and therefore its value will be maximized to almost entirely financed debt.

Focus EBIT – EPS:

This is based on the separation of the capital structure that maximizes earnings per share over the expected range of earnings before interest and taxes.

The main emphasis is not on the calculation of the effects of different financial structures in returns for owners.

In conclusion, the capital structure significantly affects the situation of the company and puts it into an advantage or disadvantage against competition, it is clear that the company that has a capital structure very close to the “best” and maximize its value against the other will have a greater chance of settling in the new competitive market order.

In reality, each company chooses the capital structure that best suits them, as there are internal and external factors that influence the decisions of senior officers and managers of the entity, so it’s best to make a careful study of that structure that is most helpful to achieve a higher value of the company and shareholders given that profit maximization is not the only thing that moves the owners of the entities.

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