Corporate Financial Strategy Assignment

CORPORATE
FINANCIAL STRATEGY

INTRODUCTION
The area and aspect in which a company or an organisation deal with the different
financing sources as well as capital structure which are related to the financial department is
known as corporate finance. Apart from this in the corporate finance there are stock market
comes into consideration because it is the key part of every organisation which listed in
respective market. There are various number of strategies which are used in the corporate finance
for make it better and enhance level of profit. Further, the present case study is based on the
Glaxosmithkline (GSK) company which is operating in the Pharmaceutical, Consumer goods and
Biotechnology industry. Apart from this it is a public limited company and having global
presence. The current study shows about the discount rates, dividend policy as well as capital
structure of the GSK in context to the stock market. Beside this, the study describes about the
valuation of stock and dividend using different dividend ratios and models. Moreover, the study
helps to reader to analyse corporate life cycle of chosen firm using four aspects. At the end of
report, it describes about the shareholder value performance of the GSK and compare with the
AstraZeneca (AZN) company which operates in the same industry.
A) Discount Rates & Capital Structure
1. Calculation of Cost of Equity, Cost of Debt and Weighted Average Cost of Capital (WACC)
of Glaxosmithkline (GSK)
In the financing world there are different kinds of elements and available which helps to
management in order to assess its performance. When a business entity going to expand the firm
and enter in new market then it requires fund and capital which is provided by the several
sources of finance. Further, such all the financing sources imposes cost and charges in different
forms on the firm which uses its financing services. There are mainly two costs are analysed
using different formulas which are such as cost of equity and cost of debt. Moreover, cost of
equity associated with the equity financing while cost of debt associated with the debentures
which are denoted by Ke and Kd respectively (Jorda, Schularick and Taylor, 2016). On the basis
of such both the costs Weighted average cost of capital (WACC) is to determined of the firm.
Furthermore, Ke, Kd ad well as WACC of the GSK firm calculated and interpreted as below:
1

Cost of Equity (Ke)
It is an aspect and cost related with equity financing which allow to the companies for
provide financial resources. Apart from this, it shows that the shareholder's required and
expected rate of return is up to which level behind investing money in GSK. On the basis of such
factor the management of firm analyse that how much expected return will be there with the
stockholders. It is explained along with calculation with reference to GSK as below:
For the year 2012
CAPM Assumptions 2012
K(e) 0.64%
RFR 1.0%
Beta 0.55
Rp 0.35%
For the year 2013
CAPM Assumptions
K(e) 1.09%
RFR 1.0%
Beta 0.46
Rp 1.19%
For the year 2014
CAPM Assumptions
K(e) -0.82%
RFR 1.0%
Beta 1.52
2