Beruflich Dokumente
Kultur Dokumente
7
CREDIT ANALYSIS
CAPITAL STRUCTURE AND SOLVENCY
Prepared by :
Sukjit Singh
815739
Ayushafiza Zulkifly
816248
Parimala Devi Ponnan
819260
Asiah Abd. Harith
816444
Prepared for:
Dr. Norshafizah Hanafi
BWFF 5033
Capital
Structure
Motivation
for Debt
Financial
Leverage
STRUCTURE
COMPOSITION AND
SOLVENCY
Interpretation of Measures
EARNING
S
COVERAG
E
Introduction to
Earning
Coverage
BASIC SOLVENCY
PROFITABILI
TY
LIQUIDITY
SOLVENCY
DEVELOPME
NT
BASIC SOLVENCY
Solvency - refers to a companys long-run financial viability
and its ability to cover long-term obligations
BASIC SOLVENCY
CAPITAL STRUCTURE
Equity financing
Risk capital of a company
Uncertain and unspecified return
Lack of any repayment pattern
Contributes to a companys stability and solvency
Debt financing
Must be repaid with interest
Specified repayment pattern
When the proportion of debt financing is higher, the higher are the resulting fixed charges and repayment commitments
BASIC SOLVENCY
MOTIVATION DEBT
From a shareholders perspective, debt financing is less expensive than equity financing because:
deductible expense
BASIC SOLVENCY
FINANCIAL LEVERAGE
Asset turnover
Leverage
Comprehensive measure of the relation between total debt and total capital
Comprehensive measure of the relation between total debt and total capital
Earnings Coverage
Earnings to fixed charges
Earning coverage measures focus on the relation between debtrelated fixed charges and companys earning available to meet this
charges.
Earning to fixed charges
Earnings Coverage
Times Interest Earned
Earnings Coverage
Interpreting Earnings Coverage
1)Earnings-coverage measures provide insight into the ability of a
company to meet its fixed charges
Earnings Coverage
Capital Structure Risk & Return
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