Table 3: Intrinsic Value Of Stocks

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Table 3: Intrinsic Value of stocks (Refer to Table 6 for Calculation of required rate of return through CAPM model)
For the calculation of bonds, the following information has been provided for Hirsch as shown in Table 5. The coupon rate of the bond is higher than the Yield to Maturity. This means that the bond will be sold at premium since its market value exceeds that of its par value Secrest & Burney (2007, p4).
Table 4: Intrinsic value of bonds Market value of Hirsch
The market value of Hirsch was calculated using its share price and number of years which came out to be £531,250,000 as shown below. Market value reveals the worth of the company and facilitates those individuals who plan on investing in Hirsch. Thus, it helps adjusting
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Even though debt is a liability which has to be paid back to the debtors and if not, the company may end up defaulting on its payments and the debtors can claim back their funds through liquidity of its assets however, this in no way means that debt financing does not have benefits.
Table 6: Capital gearing, Income gearing and financial leverage ratios The table above briefly explains the financial ratios that have been calculated. Capital gearing ratio shows Hirsch’s capital structure. As explained by AccountingforManagement.org (2016), since company’s equity is higher than debt, it is low geared and depends less on debtors. Its opposite is debt to equity ratio which is 0.376 and explains the same result that the company is relying largely on the investment made by its shareholders.
Income gearing ratio of 0.02 and Interest coverage ratio of 50 both show that the interest expense of Hirsch is merely 2% of its overall profit. As mentioned by InvestorGuide (2016), even though this is a good thing since the risk of default on debt payment would be low but then, this also reduces the tax advantages that it could have enjoyed had the debt and interest expense been higher.
Critical analysis of debt
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Thus, it facilitates timely growth of business and better returns if the operations are not delayed. Debt financing does not allow debtors to interfere with the usual running and decision making of the business as they do not acquire ownership of the business. This is the opposite of what happens in equity financing where the shareholders are basically the owners according to their number of shares and thus can influence their decisions as they have stake in the business. Moreover, debt financing positively impacts the financial performance of the company since it has tax advantages (the tax is deducted on profit after interest thus this value comes out to be lower than that without any interest

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