Sources of Long Term Finance for Nestle (Malaysia) Berhad

BUSINESS FINANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
Sources of long term finance available to company...............................................................1
Shareholder wealth maximisation model................................................................................3
Capital Structure of Nestle.......................................................................................................4
Computation of the WACC of Nestle (Malaysia) Bhd...........................................................5
Capital structure theory in relevance to Nestle (Malaysia) Bhd...........................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUTION
Corporate finance refers to the area in finance dealing with the sources of funds, capital
structure of the corporations, actions that are taken by the managers for increasing the value of
firms of shareholders and tools and the analysis used for allocating the financial resources. It is
mainly concerned with maximising the wealth of shareholders through short term and long term
financial planning and implementation of various strategies. Corporate financing is very essential
for all the business organisations for making the business a success. It is essential for the
business enterprise to ensure that the strategies and policies adopted by it result in the wealth
maximisation of the shareholders. Present report is based over Nestle (Malaysia) Berhad. It will
provide detailed understanding about the corporate structure of the organisation.
Nestle (Malaysia) Berhad
Nestle (Malaysia) Berhad is nutrition, health & weakness company that is Malaysian
based. It is a public listed company in Malaysian stock exchange. It is serving food & beverage
sector from many years. Company is serving excellently to its investors maximising their wealth.
Return on investment of company is 62.98 % and Return over equity is 24.15%. Company is
having market cap of 31.65 billion.
Sources of long term finance available to company.
Finance is the life blood of every organisation. Finance is need for running the operations
of company and also for the expansion of business. Finance is required at every level of the
organisation. Managers and finance executives of the organisations strive for raising funds from
the most suitable sources of finance. There are number sources of finance available to the
company through which it can raise funds (Damodaran, 2016). It is essential for the business
enterprise to choose for the most suitable source of finance. Different sources of finance
available to a listed company are
Equity capital
It represents interest free perpetual capital of company that are raised by private or public
routes. Company for raising thefu8nbds the option of either raising the funds via IPO from
market or else may opt for private investors for taking the substantial stake in company. Equity
financing is the commonly used source of financing. In equity financing, ownership is diluted to
the increased number of shareholder. Controlling is also transferred to the equity holder having
largest stake. Companies do not give the equity holders preferential rights in dividend of
1

company. Equity holders high rate of return as compared with the debt holders as they have to
bear higher risks. This is finance source that is mostly used by organisations as they are not
required to pay fixed amount of return on the funds.
Preference Capital
This is moreover same as equity financing except certain rights. In this company has to
give preference to these shareholders at the time of liquidation over the equity shareholders.
Company is required ton pay fixed rate of dividends every year and the money invested after the
specified period. They carry the same risk as that by equity shareholders only difference is they
are redeemable after specified time and fixed dividend is paid every year. This is now not much
used by companies for raising funds from the market due to the fixed dividends. In this also the
ownership is diluted.
Debentures
This is a loan taken by the public by issuing the debentures certificates under
common seal of company. Debentures could be issued by private or public placement. When
company is raising money by issuing non convertible debentures from general public, it may
take the IPO route where subscribers are issued debenture certificates for the amount of money
granted. Company may also go to the major debt investors in market for borrowing money. On
debentures company is required to pay fixed rate of interest every year. Debenture holders are
the creditors of company are required to be paid through redemption after specified period.
Companies uses debentures for raising funds after equity as raising money is easier from the
market as they are less risky than equity capital (Fracassi, 2017). Debentures are hedged over
assets of company which is not the case with equity financing.
Term Loans
Terms loans is the another source of finance for company. These loans are generally
granted by the banks or the financial institutions for a period more than year. Term loans are
granted on analysing the feasibility of project or the expansions plan and the financial position
of company. Loans are granted if they are satisfied by the company. This is raised by company
for meeting the capital requirements. Loans are issued at fixed rate of interest with the instalment
of principal repayments to be paid every year. It provides the borrowers with the flexibility of
repayments to schedule the repayments as per their convenience. These loans could be raised
much faster as compared with debenture and equity financing. Terms loans are given by banks
2