Capital structure analysis

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Capital structure analysis

Introduction

The capital structure and capital requirement is an important aspect of the corporate firms in order to generate higher profits. The corporate firms in the world usually depend on both types of financing that is on the debt and equity so that they can enhance their business activities. Through the evolution of different types of companies, capital requirement of companies have been relatively relaxed. Often a barrier to entrepreneurship, the recent upsurge creations illustrates this flexibility

In this study we will be analyzing the whereabouts of how Hp have succeeded and strived to maintain a liquid, yet profitable business over the span of time.

Discussion

Capital structure analysis

Business risk is measured by the volatility of EBIT. It is brought on by business and industry characteristics (sales volatility, fixed costs)

Financial risk is measured by the difference between the volatility of Net Income when debt is present and the volatility of Net Income when debt is not present. It is brought on by the fixed interest expense that accompanies debt (House, & Price, 2009).

To begin the discussion, Hewlett Packard (HP) is one of the most important companies to function and rest in the IT Industry. The value of the company itself (as of the year 2010) was closed at US$109 billion. To bring to notice, the company has maintained a hybrid or a combination of both debt and market equity funds that has yielded enough revenue and profits broad enough for the company to survive this long. There are several reasons why sticking to one particular source of fund shall not be feasible. For instance, with reference to 2010 statistics, if the company's US$8 billion equity was to be backed by US$8 billion. This change would although give out an additional A+ rating, however it would result ...