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Unit 9: Financial Management Decisions

has to be paid regardless of profit. Therefore, when sales are high, thereby the profi ts are Notes

high and company is in better position to meet such fixed commitments like interest on
debentures and dividends on preference shares. If company is having unstable sales, then

the company is not in position to meet fixed obligations. So, equity capital proves to be safe
in such cases.

9. Sizes of a company: Small size business firm’s capital structure generally consists of loans
from banks and retained profits. While on the other hand, big companies having goodwill,

stability and an established profit can easily go for issuance of shares and debentures as

well as loans and borrowings from financial institutions. The bigger the size, the wider is

total capitalization.
10. Tax Exposure: Applicable tax laws and regulations may also play an important role in
capital structure decisions. Since debt payments are tax deductible, if a company’s tax rate
is high, it may make sense to use debt as a means of financing. The tax deductibility of debt

payments will protect some income from taxation.

Caselet The DCM Case

Client Background: The DCM division of a global banking group wanted to add additional
capacity to its capital structure/modelling team. Within three weeks of the client signing

off on the deal, we had established a dedicated team of eight financial professionals, mainly
Chartered Accountants with significant debt modelling expertise.

Service Offerings: Copal had fully adopted the client’s research methods, and was delivering
a range of standard materials to the DCM team including:
1. Capital Markets overview
2. Capital structure analysis, leverage headroom analysis

3. Comparative studies on capital markets and instruments
4. Debt comparable company analysis
5. Debt precedent transaction analysis

6. Financial modelling
7. Indenture analysis
8. Liquidity analysis

Results: As a result of the solutions provided by the Copal team the client is now able
to quickly and consistently conduct detailed analysis on optimal capital structure and
financing solutions. The team supports the origination team and provides research

analysis used both in preparing tender proposals and internally by the credit function.
The Copal team delivers significant client advantages compared to the cost of employing

staff internally, the time it takes to deploy the team and the ability of the client to operate

flexibly, scaling efficiently in response to fluctuations in market activity.

Source: http://www.copalpartners.com/case-study/dcm-case-study

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