1.

INTRODUCTION Company AJI-NO-MOTO story began with taste, when Professor Kikunae Ikeda from

the University of Tokyo isolated glutamate from the seaweed and discovered its flavour enhancing properties in 1908. The next year, his discovery was introduced to the market in the form of the flavour enhancer AJI-NO-MOTO meaning the Essence of Taste (scientifically, it is termed as Monosodium Glutamate, or MSG in short.) Today, AJI-NO-MOTO is sold more than 100 countries, and Ajinomoto Group's 15 factories around the world are supplying about one-third of the 1.5 million-ton global markets for monosodium glutamate. Ajinomoto (Malaysia) Berhad, a multinational company under Ajinomoto Co. Incorporated, Japan, a well established and reputable food production organisation established in 1961. It is also one of the very first Japanese joint-venture companies to be set up in this country. Ajinomoto (Malaysia) Berhad has since grown into a dynamic food seasoning manufacturer marketing diverse brand name that is trusted by Malaysian for decades. Our AJI-NO-MOTO food seasoning is an indispensable item in almost every Malaysian home.

1.1

PHILOSOPHY
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We create better lives globally by contributing to significant advances in Food and Health and by working for Life. 1.2 VISION

We aim to be a group of companies that contributes to human health globally by continually creating unique value to benefit customers. 1. To become a global group of food companies centered on the world's No. 1 seasoning business. 2. To become a global group of amino science companies that contributes to humankind with the world's No. 1 amino acid technology. 3. To become a group of health-promoting companies with a scientific approach to good taste and health. 2.0 METHODOLOGY

Modigliani-Miller Theory The Modigliani-Miller theorem states that in the absence of taxes, bankruptcy costs, and asymmetric information and in an efficient market. A company`s value is unaffected by how it is financed regardless of whether the company`s capital consists of equities or debt or a combination of these what the dividend policy. The theorem is also known as the capital structure irrelevance principal. A number of principal underlie the theorem, which holds under the assumption of both taxation and no taxation. The two most important principles are that. First if there are no taxes, increasing leverage brings no benefits in terms of value creation. Second
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that where there are taxes such benefits by way of an interest tax shield, accrue when leverage is introduced or increased. For the Aji-no-moto`s firm, they use the principal without taxes. That its because they not debt in cash flow for 3years. 2.0.1 Without taxes Proposition I: where only of equity, and is the value of an unlevered firm equal price of buying a firm composed is the value of a levered firm equal price of buying a firm that is

composed of some mix of debt and equity. Another word for levered is geared, which has the same meaning. Proposition II: With risky debt. As leverage (D/E) increases, theWACC (k0) stays constant.

is the required rate of return on equity, or cost of equity. is the company unlevered cost of capital (ie assume no leverage). is the required rate of return on borrowings, or cost of debt.

is the debt-to-equity ratio.

A higher debt-to-equity ratio leads to a higher required return on equity, because of the higher risk involved for equity-holders in a company with debt. The formula is derived from the theory of weighted average cost of capital (WACC). These propositions are true assuming the following assumptions: No taxes, no transaction costs exist, and Individuals and corporations borrow at the same rates. 2.0.2 With taxes Proposition I:

where is the value of a levered firm. is the value of an unlevered firm. is the tax rate ( the term ) x the value of debt (D)

assumes debt is perpetual

This means that there are advantages for firms to be levered, since corporations can deduct interest payments. Therefore leverage lowers tax payments. Dividend payments are nondeductible.

Proposition II:

where is the required rate of return on equity, or cost of levered equity = unlevered equity + financing premium.

is the company cost of equity capital with no leverage (unlevered cost of equity, or return on assets with D/E = 0).

is the required rate of return on borrowings, or cost of debt. is the debt-to-equity ratio. is the tax rate. The same relationship as earlier described stating that the cost of equity rises with

leverage, because the risk to equity rises, still holds. The formula however has implications for the difference with the WACC. Their second attempt on capital structure included taxes has identified that as the level of gearing increases by replacing equity with cheap debt the level of the WACC drops and an optimal capital structure does indeed exist at a point where debt is 100% The following assumptions are made in the propositions with taxes: corporations are taxed at the rate on earnings after interest,
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no transaction costs exist, and Individuals and corporations borrow at the same rate.

3.0

ANALYSIS AND FINDINGS 3.0.1 Capital Structure

Capital structure is the combination of a company's long-term debt, equity, and retained earnings. The capital structure is the firm's various sources of funds and it are used to firm overall operations and growth. Debt are comes in the form of bond issues or long-term notes payable, whereas equity is classified as common stock, preferred stock, or retained earnings. Short-term debt such as working capital requirements also is considered part of the capital structure. At below it show the capital structure of Ajinomoto (Malaysia) Berhad.

Equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders'
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funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock. Ajinamoto (M) Berhad is a unlevered firm. So,they have no debt. In 2009 Ajinamoto (M) Berhad equity are 36%, in 2010 are 33%, and for 2011 are 30%. Although the percentage has decreased but the total equity for the three years were the same, RM 65,102,234. It is because Retained Earnings increased from year to year. Retained earnings are in same place with equity, its means that the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet. In accounting, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Retained earnings are reported in the shareholders' equity section of the balance sheet. Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit. A complete report of the retained earnings or retained losses is presented in the Statement of Retained Earnings or Statement of Retained Losses. In 2009, Retained Earnings is RM 117,417,886 namely 64%. Retained Earnings in 2010 is RM 132,359,068 namely 67% and for 2011 is RM 148,553,371 namely 70%. Retained earnings for Ajinamoto (M) Berhad is high in 2011 and more low in 2009.

3.0.2

Taxes

2 009
0% 0% 9%

Equity Taxes 91%

2 010
0% 0% 9%

Equity taxes 91%

3.0.3

Long-term Liabilities

Long term debt refers to loans and financial obligations lasting over than one year. Firm need to make loan as their addition to equity or capital to generate profit. Loans also can reduce tax in that firms, more debt more tax can be reduces. Below is show long term liabilities in 2009, 2010 and 2011. Its more high in 2011 and lower in 2009.

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The most important type of long term liability is debt. Preference shares are not debt, but given that they are "debt like" this is often something investors should adjust for. Long term liabilities are looked at by investors assessing a company's financial health using ratios such as interest cover. Because of gearing high debt enhances the benefits of growth. Non-current liabilities in Ajinomoto (Malaysia) Berhad in 2009 is RM 9,539,576 and be higher than the next year. In 2010 is about RM 10,234,061 and decrease in 2011 to RM 9,807,670. A non-current liability is show the Ajinomoto (Malaysia) Berhad long term debt that more than one year. From that statement it show that in year 2010 Ajinomoto (Malaysia) Berhad debt in long term are the highest from that two year more and its shows the Ajinomoto (Malaysia) Berhad have more debt in that year.

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Follow the theory Modigliani-Miller with and without taxes, the firm can use theory without taxes. This is because the firms have not debt. When the firm has not debt, the unlevered firm will pays high taxes than the levered firm. The cost of equity also rises with leverage because the risk to equity rises with leverage. 3.0.4 Working Capital

Working capital is different between current assets minus current liabilities. If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. Working capital also gives investors an idea of the company's underlying operational efficiency. Slow collection may signal an underlying problem in the company's operations Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets. Working capital is also known as "net working capital", or the "working capital ratio". For Ajinomoto (Malaysia) Berhad, their net working capital is always positive, and it shows that this firm is able to pay their debt. When to pay the debts follow the theory MM, the firm will pays less the tax. It is because thus sum of debt plus the equity of the levered firm is greater than the equity of the unlevered firm.

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Working capital is show the Ajinamoto (Malaysia) Berhad ability to generate their operation more high the working capital is better. It shows that Ajinamoto (Malaysia) Berhad working capital are high in 2011, its means that Ajinamoto (Malaysia) Berhad have ability to do their operation to produce product, it also because of Ajinamoto (M) Berhad equity which high in this year. Ajinamoto (M) berhad working capital more low in 2009, it occur may be because of the economic crisis. 3.0.5 Dividend

Dividend is refers to cash that the firm have to pay to shareholder from the firm net profit. The policy a company uses to decide how much it will pay out to shareholders in dividends. Any direct payment by the corporation or firm to shareholders may be considered a dividend or part of dividend policy. In Ajinomoto (Malaysia) Berhad its show that have increasing in every year.

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Dividend is the cash that Aji-na-moto need to pay to their shareholder in cash. Number of share held is the same for three years, that is 607, 985. In Aji-na-moto (M) Berhad, dividend per share in 2009 was 12.92 sen, bringing the total dividend paid by RM 7,855,171. In 2010, dividend per share was 15.00 sen and dividend paid by RM 9,119,780 and for 2011, dividen per share was 15.75 sen and dividen paid by RM 9,575,771. It means that dividend payout is high in 2011, it is because the profit at this year is high over the previous year. See the theory MM, the corporation can deduct interest payment but not dividend payment and the corporate leverage lowers tax payment. It`s mean that, the Aji-no-moto not used dividend to payment taxes. 4.0 SIGNALING THEORY

Signaling theory is useful for describing behavior when two parties (individuals or organizations) have access to different information. Typically, one party, the sender, must choose whether and how to communicate (or signal) that information, and the other party, the receiver, must choose how to interpret the signal. Accordingly, signaling theory holds a prominent position in a variety of management literatures, including strategic management, entrepreneurship, and human resource management. While the use of signaling theory has gained momentum in recent years, its central tenets have become blurred as it has been applied to organizational concerns. The signaling is about the relationship between companys profitability and it is debt level. A firm with low anticipated profits will likely take on a low level of debt. A small interest deduction is all that is needed to offset all of this firms pretax profits. And too much debt would raise the firms expected distress costs. A more successful firm would probably take on more debt. This firm could use the extra interest to reduce the taxes from its greater earnings. Being more financially secure, this firm would find its extra debt increasing the risk of bankruptcy only
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slightly. In other words, rational firms will raise debt levels (and the concomitant interest payments) when profits are expected to increase. Rational investors likely to infer a higher firm value from a higher debt level. We can say that investors view debt as a signal of firm value. A successful firm would probably take on more debt. Ajinomoto (Malaysia) Berhad is a unlevered firm. So, they have no debt. Ajinomoto (Malaysia) Berhad does not fit this theory because of the company's signaling of messaging had no debt, and this firm should pay a higher of corporate tax to the amount according the theory. 5.0 PECKING ORDER THEORY

The Pecking Order Theory is a popular capital structure theory which usually explains why internal finance is much more popular than external finance and why debt is classified as the most attractive external finance option. The theory basically suggests that companies with high profitability may use less debt than other companies because they have less need to raise funds externally and because debt is the cheapest and most attractive external option when compared to other methods of capital raising. In reality, the behavior of pecking order theory is due to the existence of transaction costs. The transaction costs are commonly related with the raising of external funds in the form of debt or equity that will result in financing hierarchy in which the cheapest funds will be used first. There are two main parts of transaction costs which are the compensation for dealer who handle the issue and other legal and administrative costs.

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The pecking order theory suggests that there is an order of preference for the firm of capital sources when funding is needed. companies always follow a hierarchical pattern in financing sources internal funds are always preferred to external ones borrowing is preferred to issuing risky securities. The firm will seek to satisfy funding needs in the following order: -Use internal funds Rule #1: Use Internal Financing. For expository purposes, we have oversimplified by comparing equity to riskless debt. Managers cannot use special knowledge of their firm to determine if this type of debt is mispriced because the price of riskless debt is determined solely by the marketwide interest rate. However, in reality, corporate debt has the possibility of default. Thus, just managers tend to issue equity when they think it is overvalued. When would managers view their debt as overvalued? Probably in the same situations when they think their equity is overvalued. For example, if the public thinks that the firms prospects are rosy but managers see trouble ahead, these managers would view their debt as well as their equity as being overvalued. That is, the public might see the debt as nearly riskfree, whereas the managers see a strong possibility of default. Thus, investors are likely to price a debt issue with the same skepticism that they have when pricing an equity issue. The way managers get out of this box is to finance projects out of retained earnings. You dont have to worry about investor skepticism if you can avoid going to investors in the first place. So the first rule of the pecking order is this: use internal financing.
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-Issue safe securities first/ external financing Rule #2: Issue safe securities first. Although investors fear mispricing of both debt and equity, the fear is much greater for equity. Corporate debt is still has relatively little risk compared to equity because if financial distress is avoided, investors receive a fixed return. Thus, the pecking-order theory implies that if outside financing is required, debt should be issued before equity. Only when the firms debt capacity is reached should the firm consider equity. Of course, there are many type of dent. For example, because convertible debt is more risky than straight debt, the pecking-order theory implies that managers should issue straight debt before issuing convertibles. So, the second rule of pecking-order theory is this: Issue the safest security first. According to the pecking order theory, Pecking Order theory is like the order of financing balance of resources that should be used first and which later Ajinomoto (Malaysia) Berhad should use retained earnings to make an investment as a source of financing because its a internal financing. If the source of internal financing balance is used, companies tend to use rule 2, the external financing but the company will likely use debt instruments like bonds than stocks as a source of financing for rule 2.

6.0

CONCLUSION

From the research the we have done, we make a conclusion that Aji-no-moto is the unlevered firm. Aji-na-moto only used equity n return earning on their capital structure. However it not
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make they cannot make profit. As we know, Aji-no-moto company was the succesfull firm. The most important capital structure producing the highest firm value is the one that maximize shareholder wealth. Although the above work of MM is quite elegent, it does not explain the empirical findings on capital structure very well. MM imply that the capital structure decision is a matter of indifference, whereas the decision appears to be a weighty one in the real world. To achieve real-world applicability, we next considered the corporate taxes. Such as Ajinomoto, they can recover their own capital structure as well as they can do. The most releven method we suggested they make addition in their capital structure. Why not they make debt to get a more valuable for the company. Ajinamoto will get the tax shield. So the company can improved their performance.

REFFERENCES http://www.ajinomoto.com.my/2009/en/about_us/index.html http://www.ajinomoto.com.my/2009/en/about_us/about_us_philosophy.html http://www.ajinomoto.com.my/2009/pdf/annualreport2010.pdf http://www.ajinomoto.com.my/2009/pdf/annualreport2009.pdf http://www.ajinomoto.com.my/2009/pdf/annualreport2008.pdf

APENDIKS

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