What is Capital Structure, Financial Structure, and Assets Structure?

The term capital structure is different from the financial structure and assets structure. 

Financial structure consists of long-term debt, short-term debt, and shareholder's fund, i.e., the complete left-hand side of the company’s balance sheet. 

Capital structure includes long term debt and the shareholders’ fund.

Hence, capital structure is different from the financial structure. It is a portion of the financial structure. 

The capital structure does not include short-term liabilities, whereas financial structure includes short-term liabilities or current liabilities.

Assets structure signifies the composition of total assets used by an organization. It specifies the application of funds in the various types of assets fixed as well as current.

• Assets structure = Fixed Assets + Current Assets.

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• The term capitalization refers to the total amount of long-term funds at the disposal of the company. It did not matter how it was raised. It can be raised from equity shares, preference shares, retained earnings, debentures, or institutional loans.

Capitalization change

Capitalization change refers to a modification of a company's capital structure — the percentage of debt and equity used to finance operations and growth. 

Debt includes bond issues or loans, while equity mainly consists of common stock, preferred stock, and retained earnings.

The capital structure in a firm is generally expressed as debt to equity or debt to capital ratio.  The total amount of debt or equity employed by a firm to fund the operations and finance the assets in a business. 

To fund the business’s operations, acquisition, and other investments, organizations use debt and equity capital. Companies need to look at tradeoffs and then decide whether they need to use the debit or equity to finance the operations. The managers balance the two to check the optimal capital structure.

JOHNSON & JOHNSON

 

Revenues increased from US 71.3 B in 2013 to US 94.9 B in 2022.

PBT increased from  US15.5 B in 2013 to US 21,7 B in 2022.

EPS increased from US 4,81 in 2013 to US 6.73 in 2022.

PBT margin averages 23.77% from 2013 to 2022.

Quality:  Great (Stalwart, Slow grower)

Management:  Excellent

Valuation: -

Those holding this stock has enjoyed gradual increasing dividends for many years.  An example of a dividend growth investing stock.  

Mkt cap	377.77B
P/E ratio	31.79
Div yield	3.03%

CDP score	A
52-wk high	181.04
52-wk low	150.11

At USD 156.88 per share, it is trading at the lower half of its 52-wk high and low price range, giving a DY of 3.03%.  

My projection is this company will continue to grow its annual EPS at just below 5% per year consistently.

STARBUCK

 

Revenues were consistent and growing.
Its earnings were consistent and growing.

Its PBT margins were around 20%, except for the last 3 years due to disruption during the pandemics.

It can be anticipated that its PBT margins should return back to its previous levels.

MCDONALD

 

Revenue declined over the studied period.  The PBT margins were lower in the first half of this period, and higher the latter half of this period.  Though the revenue declined, the PBT remained flat throughout this period, due to the higher PBT margin in the latter half.

Quality:  Good

Management:  Good

Valuation:  -

Growth:  Flat, no growth.

COCA COLA

NIKE

 

Revenues, PBT and EPS grew consistently, doubling over 9 years from 2014 to 2023.  This gave a growth rate of about 8% per year.

PBT margin peaked in 2021;  declined in 2022 and 2023.

Quality:  Great

Management:  Great

Valuation:  -

TOMEI

 

CAPITALA

 

INSAS

 

ALLIANZ

 

Its revenues grew at rate of about 7% to 8 % per year from 2014 to 2022.  Its PBT grew at the rate of slightly above 10% yearly and its adj EPS grew at about 10% yearly for the same period, in tandem with the increasing revenues.  However, PBT margin has been flat during this period.

Its share price has increased slightly during this period and due to its EPS rising faster than its share price, its PE has contracted from PE of 8 in 2019 to PE of between 5 to 6 today.

LPI

LPI

Its revenues grew consistently and at a rate of between 5% to 10% yearly..  However, profit before tax declined since 2016 due to shrinking profit before tax margin.  The profit before tax margin declined from a high of 37.6% in 2016 to 22.5% in 2022.   This is due to liberalization of the insurance sector and the increasing competition in the market place.

Its share price has declined at the same pace as the decline in its profit before tax and its EPS, resulting in a flattish PER. 

POH KONG

 

KIM LOONG

 

NETX

 

MYEG

 

MYEG

Growth in revenues and PBT was very fast in its early years.  Growth in revenue has slowed,  though PBT in 2022 was higher due to better profit margin.  Its earnings dropped in 2020 and has since recovered, exceeding its previous high earnings.

The share price of MYEG has been essentially flat since 2021.  With its better earnings, the company is now on offer at better value than before.

ZOOM VIDEO (zm)

 

This company benefitted during the pandemic lockdown.  Its revenues zoomed upwards in 2020 to 2021 and are still growing, but at a slower rate.  Its profit margins expanded hugely from 2020 to 2022.  The profit margins has since dropped (normalise) to its pre-pandemic level.  

Not a stock for the long term.  Very competitive business.  Economic moat is small, perhaps, non-existent.  Many new players are offering similar services.

AMERICAN AIRLINE

SOUTHWEST AIRLINES

 

BOEING