From the above analysis, it can be found that capital structure of the company is strong enough to maintain a strong financial position in the external market. The capital structure theory is concerned with the analysis of the liabilities and equities of the Wesfarmers Company. Under this theory, debts and equities are compared to derive a common conclusion about the net position of the company (Lambrinoudakis, 2016). When the capital structure of a company is strong, it attracts a large number of potential investors, which thereby raises its market share. In the present case, gearing ratio presents the debt position of the company which shows effective results. The weighted average cost of capital is also giving desired results for the purpose of capital investment as compared to other companies in the market. The capital structure theory is the most effective aspect for the analysis of the findings of the company.
Provide a recommendation to the Board on the firm’s current capital structure.
It can be recommended to the board on the basis of firm’s capital structure to find more ways to strengthen the financial position of the company. The net profit of the company can be increased with the help of reducing total expenditure or increasing the sales revenue. The revenue can be improved with the help of effective advertisement techniques and other promotional measures (Matthew, 2016). The interest income can also be raised by identifying the best investment opportunities. Expenditure related to employee turnover can be reduced by providing adequate training and other facilities to the employees.
Another recommendation to the board is to find more ways to attract capital investment from the external market. It would be very beneficial for the overall growth of the company. Wesfarmers can also forecast more profits by entering into other business sectors.
In this report, a critical analysis is done on the capital structure of a well-known company named “Wesfarmers Ltd”. The weighted average cost of capital of the company is calculated for the purpose of analysing its net capital position in the market. A gearing ratio is also calculated for assessing the debt position of the company as compared to its total equity. It is one of the most important aspects for assessing the capital position of the company. A brief summary of the judgment and analysis is also done for explaining the workings. At the end of the calculation part, it is recommended that the board can make efforts to improve its revenue and minimize its expenditure for gaining better profits and attracting more capital investment.