MFRD
Introduction
This report focuses on three important areas of financial management namely Capital structure, Management of Working Capital and Investment appraisal.
While the first two parts of the report analysis Apple’s activities, the last part of the report is related to the given scenario.
The first part of the report evaluates Apple’s capital structure. After determining the company’s capital structure, the report will evaluate different financing options for the company’s capital investments. The analysis involves the cost of debt and equity. The aim is to justify the financing decision for a long term.
The second part of the report evaluates the performance of Apple’s working capital management practices. This part relies on the ratio analysis. Current Ratio, Debtors, Creditors and Inventory days will be calculated over a three years period. The data is gathered from the Yahoo Finance. In order to make the analysis more meaningful there will be a benchmarking with a main competitor.
The last part of the report conducts NPV analysis to find out the best investment option for the given scenario. The project with the highest NPV is likely to be most beneficial for the company.
Subsequently conclusions will be drawn.
Reason for Choosing Apple for this study
I have a personal interest in this company as it is seen the most successful company in the world at the moment. I will be able to learn from the best practice.
Capital Structure and Financing Decision
A firm’s optimal capital structure is the mix of debt and equity that minimises the weight cost of capital of the firm. When the cost of capital is minimised, the total value of firm’s shares are maximised. As a result the minimum cost capital structure is called as the optimum capital structure. (Moyer et al., 2012)
According to Moles et al. (2011) managers decide on the optimum capital structure based on the trade-offs between the benefits and costs of debt. The fact that there
This report focuses on three important areas of financial management namely Capital structure, Management of Working Capital and Investment appraisal.
While the first two parts of the report analysis Apple’s activities, the last part of the report is related to the given scenario.
The first part of the report evaluates Apple’s capital structure. After determining the company’s capital structure, the report will evaluate different financing options for the company’s capital investments. The analysis involves the cost of debt and equity. The aim is to justify the financing decision for a long term.
The second part of the report evaluates the performance of Apple’s working capital management practices. This part relies on the ratio analysis. Current Ratio, Debtors, Creditors and Inventory days will be calculated over a three years period. The data is gathered from the Yahoo Finance. In order to make the analysis more meaningful there will be a benchmarking with a main competitor.
The last part of the report conducts NPV analysis to find out the best investment option for the given scenario. The project with the highest NPV is likely to be most beneficial for the company.
Subsequently conclusions will be drawn.
Reason for Choosing Apple for this study
I have a personal interest in this company as it is seen the most successful company in the world at the moment. I will be able to learn from the best practice.
Capital Structure and Financing Decision
A firm’s optimal capital structure is the mix of debt and equity that minimises the weight cost of capital of the firm. When the cost of capital is minimised, the total value of firm’s shares are maximised. As a result the minimum cost capital structure is called as the optimum capital structure. (Moyer et al., 2012)
According to Moles et al. (2011) managers decide on the optimum capital structure based on the trade-offs between the benefits and costs of debt. The fact that there
References: • Apple Annual Report, (2011), accessed 02/06/2012, accessible at http://investor.apple.com/secfiling.cfm?filingID=1193125-11-282113&CIK=320193 • BBC, (2012), Apple to pay dividend and buy back shares, accessed 02/06/2012, accessible at http://www.bbc.co.uk/news/business-17434328 • Graham, J and Smart, S. B. (2011), Introduction to Corporate Finance: What Companies Do, Third Edition, South-Western, Cengage Learning, Page 248 • Moles, P, Parrino, R. and Kidwell, D. S. (2011) Fundamentals of Corporate Finance, European Edition, John Wiley & Sons, GB, Pages 644-647 • Moyer , R. C., McGuigan, J. R., Rao, R. and Kretlow, W. J. (2012), Contemporary Financial Management, 12th Edition, South Western-Cengage Learning, USA, Page 471 • Preve, L. A. and Sarria-Allende, V. (2011), Working Capital Management, Oxford University Press, Oxford, Page 10 • Sagner, J. (2011) Essentials of Working Capital Management, John Wiley and Sons, Canada, Page 11