CAPITAL STRUCTURE

Capital Structure

Capital Structure

Introduction

This paper intends to explore the capital structure of a company. The major focus of this paper is to examine at least 5 sources of financing that are available to Tesco. Food retail is today a competitive and often more defensive industry that has had some scope for growth in recent years. Further, it also discusses the potential benefits and reasoning behind the chosen methods of financing. The financing sources can be developed internally or externally. However, in the case of Tesco, we shall discuss the various methods that are being employed in order to run the business.

Discussion

Overview of Tesco Plc

Tesco Plc is an international distribution group based in UK. It was formed in 1919 by Jack Cohen. It is involved in retail and merchandising business on a very large scale. In terms of revenue, It is termed as the third largest retail store across the world. It is a public limited company listed on the London Stock Exchange.

Regarding financial performance, Tesco plc is currently one of the most successful retail operators of groceries and general merchandise in the UK, holding a 36.5% market share. Tesco is also considered the third largest retailer in the world, with market exposure to Asia, the United States of America and continental Europe. Its profit has been exceeding £ 2 billion. The ultimate goal of Tesco plc has been to grow and become the largest retail store of UK. To achieve its goal it took over Sainsbury in 1995. However, to run these large business reliable sources of finance is immensely important.

Capital Structure

The capital structure of a company can be defined as the sum of the proceeds of their own contributions and those acquired through long-term debt in order to survive in the market. When any firm considers regarding the most suitable capital structure decision that should be carried out, there is no firm answer to it since each organization has their own demands and needs in terms of financial support and financial assistance. Below are the five methods that are employed by Tesco Plc in order to raise finance.

Share Capital

This particular source of funding is available to only public companies. TESCO has been employing this method in order to raise capital. The term share capital refers to the concept where funds are raised by a public limited company by selling shares in the market. There may be various expression found regarding share capital in the capital structure of the company. These expressions are also termed as kinds of share capital.

Authorized Capital

Issued Capital

Subscribed Capital

Reserve Capital



Financial Benefits

The price can be associated with a redefinition of the financial structure of the company, with the aim of reducing the debt and thus the cost of debt capital. A listed company may also have access to risk capital at a lower cost and with greater ease than an unlisted company. The capital may be raised through the listing and to finance external growth through future acquisitions or internal growth through new ...