HA1022 Principles Of Financial Markets

Choose two (2) companies in the same industry and work on the criterion mentioned below:  

1. Business Overview
2. Risk
3. Short Term Financial Policies of the business
4. Current Capital Structure
5. Current Dividend Policy

Recommendations

References

1. Students need to clearly show the theoretical understanding of the above stated issues, defining them and using references where required
2. Further, students need to relate the theory to the companies selected by analysing the data and the stating as to how the companies are managing their Risk, Short Term Financial Policy, Current Capital Structure and their Current Dividend Policy.

Current Capital Structure:

The capital structure of a company depends on the proportion of financing the company has done through debt and equity. The proportion of debt and equity that a company has with respect to its financing has a very good influence on the perception of investors with respect to the company. 

Key Indicators:

Some of the key indicators which help in delineating whether the capital structure has adopted the right financial structure are given below.

Debt to Equity Ratio (D/E):

The ratio of the total debt to total equity of the company constitutes the debt to equity ratio. (Ross, 2013)

D/E Ratio=Total Debt/Total Equity

Interest Coverage Ratio (ICR):

Interest Coverage Ratio of a company defines the capability of the company to pay the interest on the debt it has borrowed with the help of the operating income, before interest and taxes, that it has accumulated. (Ross, 2013)

ICR=EBIT/Interest Expenses

Return on Equity:

The ratio of net income and equity constitutes the return on equity.

ROE=Net Income/Equity

Earnings per Share:

Earnings per Share shows the amount of capital that the investors earn for each share of the company that they hold.

EPS=Net Income/Total number of outstanding shares

Price per Earnings:

P/E ratio indicates the ratio of Current Market Price of a company to the EPS of a company. 

P/E= Current Market Price of a company/ EPS

If the P/E ratio of a company is higher, the company is believed to be a rapidly growing company and the earnings of the company are expected to be more in the future.