ASSIGNMENT ON CAPITAL STRUCTURE ANALYSIS.

Running head: CAPITAL STRUCTURE ANALYSIS
Capital Structure Analysis
Name of the Student:
Name of the University:
Author Note:

CAPITAL STRUCTURE ANALYSIS1
Executive Summary:
The following report consists the examination of the capital distribution of a company CANN
Group Limited. Also the weighted average cost of capital of the company is determined by
the Beta estimate calculated from the share price. The shareholder’s equity and bondholder’s
debt level of the company is analysed from the financial report of the company which is used
in the calculation of the weighted average cost of capital of the company. The capital
structure of the company is analysed with different theory of capital structure. The gearing
ratio of the company are calculated using the book value and the accounting value of
bondholder’s debt and shareholder’s equity. The gearing ratio are compared over the two year
analysis period to analyse the leverage used by the company. A relevant conclusion and
recommendation of the analysis is provided at the end of the report.

CAPITAL STRUCTURE ANALYSIS2
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Assumption in the Analysis:..................................................................................................3
Weighted Average Cost of Capital using Market Value:.......................................................4
Weighted Average Cost of Capital using Book Value:.........................................................5
Gearing Ratio for the company:.............................................................................................6
Debt to Equity Ratio:.........................................................................................................6
Loss before Interest Tax to interest ratio:..........................................................................7
Equity to Assets ratio:........................................................................................................8
Debt to Asset Ratio:...........................................................................................................9
Capital Structure Theory:.......................................................................................................9
Conclusion:..............................................................................................................................10
Recommendation:....................................................................................................................11
References:...............................................................................................................................12

CAPITAL STRUCTURE ANALYSIS3
Introduction:
A company generates returns to meet its expense which are operational or
administrative, to provide the share of returns to the debt providers and equity shareholders.
Thus a company before accumulating surplus cash needs to provide the necessary share of
return to the capital providers to the company. Thus the weighted average cost of capital of a
company is an important threshold level and can be considered as the base return which the
company has to earn from its operation of business. The following report is an analysis of the
structure of capital and weighted average cost of capital of CANN Group Limited. The
company got listed in the Australian stock exchange on 5th may 2017. Thus the data available
from that period till the present date is used to perform the requisite analysis of the company.
Along with the structure of capital in the company the gearing ratio of the company are
calculated and provided in the following report (investors.canngrouplimited.com 2019).
Discussion:
Assumption in the Analysis:
The following assumption were used for the analysis of the capital structure,
calculation of weighted average cost of capital and gearing ratio of the company,
 The data required for the analysis of the CANN Group Limited was collected from the
Annual Report of the company for the year 2018.
 The market return to calculate the cost of equity is taken at 6.1% as the average
market return taken as the average of the All ordinaries index generated a return of
0.12% which would have rendered the cost of equity negative.
 The risk free rate in Australia is taken as 1.86%, this is the Common wealth
government bond yield for 10 years.