Modern capital structure theory be defined as in perfect markets, capital structure should have no influence on the value of a firm. Therefore, choosing particular capital sructure become more and more important. Optimal capital structure are find balance between debt-to-equity range and lowest cost of capital.
Lloyds which be reinforced as the UK's largest retail bank by the end of 2008, is now considering to selling part of its assets manager named Scottish Widows Investment Partnership for increase its capital. According to Financial Times, there are 142billion pounds of assets beneath management of Scottish Widows Investment Partnership.
At the hardest time in financial market within UK, the Lloyds take the strategy to scale back the size of the bank and simplify the structure of business, is focusing on the retail market. Meanwhile, Lloyds sold out a 20% stake in wealth manager St James's Place for earn money as its market price grow up.
In the case of Lloyds TSB bank, there are particular strategy that the organization raise its capital. The organization is focus on investing in retail market. However, what is the factors influence managers choose particular capital structure?
My opinion is that there are three aspects.
Firstly, I think for all organisations, excluding debt and business risk is the basic risks. It is unirversity acknowledge that the higher business risk, lower optimal debt ratio which investors are tends to believe this company are able to be response with this capital structure in both good period and bad period.
Secondly, the tax exposure makes big differents for the companies as well as the financial flexibility. Because when the company in the good times, it is easy to raise capital, however, when it is bad times, the company may need to borrow funds, if there is too much funds, the investors would doubt the ability of the company whether it can pay back the funds or not.
Thirdly, the management and operation strategy of the company influence the capital
structure significantly. Because if the company is achieving its expansion strategies, it may be much funds for raise money. For the situation, the earning per share would be higher because the funds are invest into projects for creating profits.
structure significantly. Because if the company is achieving its expansion strategies, it may be much funds for raise money. For the situation, the earning per share would be higher because the funds are invest into projects for creating profits.
No comments:
Post a Comment