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BAP53 Corporate Finance Assignment Help
The investor will be interested in investing based on the financial condition. The financial condition is depending on the financial decisions. The capital structure decision is the very important decision area of financial decision. Fleetwood Corporation limited is a very reputed company in Australia. The financial condition of Fleetwood Corporation limited would be analysed for taking the decision.
Fleetwood Corporation limited was established in 1964. Fleetwood Corporation limited is an Australian based company. Fleetwood Corporation limited engaged in providing accommodation solution to the resources, education and affordable housing sectors. The operation area Fleetwood Corporation limited is recreation vehicles, manufactured accommodation and corporate.
The operation area of recreational vehicles is to produce the caravans and vehicle parts. The manufactured Accommodation is engaged in the manufacture, design and sale. Fleetwood Corporation limited has some subsidiary company like Fleetwood recreational vehicles Pty Ltd, Camac Pty Ltd, Bocar Pty Ltd,and Flexiglass challenge Pty Ltd. They are engaged in manufacturing of the different product (Fleetwoodcorporation.com.au, 2016).
Present Financial Condition:
The investor will be interested in investing only based on the financial position of the Fleetwood Corporation limited. Fleetwood Corporation limited does not use any long-term fund in their operation. Fleetwood Corporation limited use maximum of equity capital in the capital structure. Fleetwood Corporation limited to use only 22% debt capital. Fleetwood Corporation limited decreases the debt capital from time to time. The market value of the share is increasing day to day. The market value of the company is 229954 USD. Fleetwood Corporation limited to use only 22%of debt capital, therefore, the risk of the company is very low than the other company (Fleetwoodcorporation.com.au, 2016).
The earnings per share increase from time to time .The EPS will be in 2017 as expected to 9 used per share. The values of the company increase from time to time. The share price increases since June 2016. The dividends per share decrease from 2014. The revenue of the Fleetwood Corporation limited is decreased from 2014. The financial position of Fleetwood Corporation limited is not very good than the other similar company. The company earn profit but not distributed to the shareholders. The company want to reserve the retaining earning for the future growth.
Faboyede & Mukoro (2012) commented that the value of the company are depends on the market value of the share and the market value of debt. The market value of the share are an increase from the time of time, therefore the value of the business will be an increase. The Revenue in 2014 was 366.5 USD, but in 2015 was 301.9.The EPS was 9% in 2014. However, in 2015 it was only 3%.
Capital Raising Activity:
The source of finance is the important part of Fleetwood Corporation limited. Fleetwood Corporation limited has only two types of source of capital. It is equity capital and the short-term debt. Fleetwood Corporation limited used to reduce the risk of the company. The appropriate ratio of equity and debt is 67:33. The investors are not able to invest in an equity fund. Because the financial position of Fleetwood Corporation limited is not in good position.
Abdullah & Naser (2015) stated that the investors will be interested in investing in debt capital because; it is safer than the equity in case of liquidation. Therefore Fleetwood Corporation limited would be able to collect the fund from the source of debt capital. The owners of debt capital source are getting the fixed interest every year. Fleetwood Corporation limited will get the advantage of debt financing capital. The debt finance helps to minimise the cost of capital, Therefore the value of the firm will be maximised.
Fleetwood Corporation limited decreases the debt capital from the last few years. The present debt capital of Fleetwood Corporation limited is only 22%. The debt holder does not have any right in the management of the company and the share of profit. Fleetwood Corporation limited will get the advantage of leverage, therefore the EPS will be increased. Fleetwood Corporation limited also get a major portion of tax advantage. Fleetwood Corporation limited will be growing with the use of debt capital.
Arasteh Nourbakhsh & Pourali (2013) commented that the financing cost of debt capital is lower than the equity capital. Fleetwood Corporation limited does not increase more equity fund in their capital structure; it will be very difficult to collect the fund from the market.
Fleetwood Corporation limited raising their debt fund by the issuing of the bond. Fleetwood Corporation limited will increase more 20% debt fund. The bond is better than the other source of debt fund for the Fleetwood Corporation limited. The interest rate of a band is lower than the interest rate of bank loan. The interest rate is the key factor in raising the fund. The bank would not be interested in providing the loan because the financial condition is good at present.
Fauzi, Basyith & Idris (2013) stated that the bond is the easy way to increase the debt capital. Fleetwood Corporation limited are issue the bonds in the market and after collect the fund from the Bendigo Bank. Fleetwood Corporation limited is a well good company. Therefore, the financial position is not very at present. The investor will expect that the company will recover from this bad condition. Fleetwood Corporation Ltd is issue the bond in the market at 100 USD. Therefore, many investors are getting the chance to buy the bond. Fleetwood Corporation limited will get the benefit from the tax advantage. Fleetwood Corporation limited will pay the interest at the end of the year lower than the bank loan. The cost of capital will be low by issuing bonds.
Recommendation and conclusion:
The following recommendations can be made for Fleetwood Corporation Limited:
1. Fleetwood Corporation limited should increase the debt fund because debt capital fund helps to minimise the overall cost of capital and increase the value of the firm. Fleetwood Corporation limited will get the debt fund very easily than the equity fund.
2. The company should increase the debt capital to getting the advantage of leverage.
3. Fleetwood Corporation limited should issue the bond fund because the interest rate is lower than the bank interest.
4. The company should have to increase debt fund by 20% maximum because the risk of the Fleetwood Corporation limited will be the increased afterward.
Abdullah, A. M., & Naser, K. (2015). Determinants of Capital Structure of Banking Sector in GCC: An Empirical Investigation. Asian Economic and Financial Review, 5(7), 959-972.
Arasteh, F., Nourbakhsh, M. M., & Pourali, M. R. (2013). The study of the relationship between capital structure, firm growth and financial strength with Financial leverage of the company listed in Tehran Stock Exchange. Interdisciplinary Journal of Contemporary Research In Business, 5(7), 480.
Faboyede, O. S., & Mukoro, D. O. (2012). Financial statement insurance: Restoring investor confidence in Nigerian banks. Research Journal of Finance and Accounting, 3(4), 140-150.
Fauzi, F., Basyith, A., & Idris, M. (2013). The determinants of capital structure: an empirical study of New Zealand-listed firms. Asian Journal of Finance & Accounting, 5(2), 1.
Fleetwoodcorporation.com.au. (2016). Retrieved 5 September 2016, from http://www.fleetwoodcorporation.com.au/Investors/Financial-Reports.