Capital Structure Decision and Cost of Capital

Capital Structure Decision and cost of capital

Introduction

This report provides the picture of financial performance of three companies which are E-bay, The Clorox Company, and Darden Restaurants. The purpose of this report is to analyze the capital structure and the performance of the companies. This will further help in understanding the trends, relationships and also in analyzing the strengths and weaknesses of the companies.

The best way to analyze company's performance is comparative analysis. Therefore, this comparative analysis will provide us with the understanding of permissible capital structure and ratios in these industries.

Discussion

Nature of Business

E-Bay is the online marketplace, where the buyers and the sellers come together and trade anything they wish for. On, the other hand, we have Clorox Company, which is a specialist in providing household items, like bleach, cleaning and personal care products. Lastly, we have Darden Restaurants, which is a full-service restaurant company, having different brands like, Red lobster, Bahama Breeze, LongHorn steak house, and others which provide specialty in different meals.

Balance Sheet Analysis

E-bay current assets for FY11 amount to $ 12661454, which is 46 % of the total assets, where the total assets amount to $ 27310218. E-bay being an online shop does not need to maintain some specific inventory as it only provides a platform to buyers and sellers (Appleyard et al 2006); therefore it does not have any inventory. All the current assets are piled up as cash and equivalent, short term investments, and net receivables which amount to $4691101, $1238301 and $6150616 respectively. The company has made long term investments of $2452763, which means it has an expansion plan, rest of the fixed assets include Property and equipment, goodwill and intangible assets, which amount to $1986216, $ 8364989 and $1406380 respectively.

Current assets for Clorox for FY11 amount to $ 1279000, which constitute 30% of the total assets, where the total assets amount to $ 4163000. Major current assets are net receivables and inventory amounting to $525000 and $382000 respectively, the others are laid as cash and equivalents. However, the company has not made any short term investments. The company is not considering any long term investment/ expansion plan from last 2 years, and most of the long term assets are fixed in property and equipment, which amounts to $1039000, the rest involves goodwill and intangible assets amount to $1070000 and $ 633000 respectively.

If we analysis the current assets and total assets position of Darden Restaurant, we can see that the current assets for the FY11amount to $ 70500 which is 11 % of the total assets, where the total asset results to $ 663800. Darden's most of the current assets are piled up in receivables and inventory, which amount to $211000 and $301000 respectively. However, no short term investments had been made, just like Clorox Company, and remaining amount has been investment in cash and other assets. There is no such long term investment; all of the fixed assets are piled up in property and equipment, goodwill and intangible ...