Capital Leverage and Structure


Objective: Describe the importance of working capital to tie firm’s financial health and its effect on the firm’s profitability and liquidity.

Introduction: The Balance Sheet is the first window to open and review the strength or weakness of any company. The Balance Sheet can be carefully analyzed across three main categories of investment, specifically: Working Capital, Asset Performance, and Capital Structure. A company’s capitalization is the mixture of debt and equity. Equity capital over and above debt capital measures the strength of the business.

Deliverables: A minimum of 3 full pages (excluding the title and reference pages).

Activity Details:

Step 1: Research
Consider the following scenario. You just accepted an opportunity to manage and operate a business that you do not know much about. What financial information would you need to analyze the companys capital structure and how could it be used to advance business operations?

Perform preliminary research from the course readings and external sources (relevant internet articles, magazines, periodicals, etc.) about analyzing a company’s Capital Structure and advancing business operations.

The Written analysis should include a minimum of three references cited within the content of the paper and the reference page according to APA guidelines.

Step 2: Introduction and Description
Begin the essay with an introduction that describes what Capital Structure and capitalization is and why it is important.

Describe and Detail:

The sources and value of the various forms of leverage that are used in companies, explaining how any debt, equity, or assets are used to further the business operations. This should include the effect that leverage can have directly or indirectly on operational funds and ultimately on the operations.

The overall capital structure, including how equity, namely stocks, is held, other capital resources, and cash. How each of these items affects operations, positively or negatively, should be discussed.

How these can be used to advance the business operations, mostly focusing on how the capital structure affects available funds for operations, such a payroll, inventory costs, marketing costs, cost-of-sales and support etc.

Step 3:Summary and Conclusion
Perform reflective thinking about capitalization, capital structure and why it is so important to a company’s sustainability and how it can be used to maximize business performance. Synthesize what you have learned and write your thoughts about how effectively managing a company’s capital structure can be used to advance business operations. Please review the link provided below, containing the essay rubric, prior to proceeding:

Capital Structure Theory from Gitman, L. J. (2012). Principles of Managerial Finance (13th ed., pp. 516-522). Upper Saddle River, NJ: Prentice Hall.

Baker, H., & Martin, G. (2011). Capital Structure and Corporate Financing Decisions Theory, Evidence, and Practice (Robert W. Kolb Series, pp. 17-40). Chichester Wiley.


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