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Financial Management Report

Write a report estimating the costs of capital and its components for a selected company, and identify the main sources of finance used by the company.

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Added on  2022-11-30

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This Financial Management Report provides insights into different sources of finance and the estimation of the cost of capital for Boohoo group plc. It discusses the use of interest-bearing loans, borrowing, and equity shares for acquiring funds. The report also explains the calculation of the Weighted Average Cost of Capital (WACC) using the Capital Asset Pricing Model (CAPM) and Dividend Discount Model (DDM). It highlights the assumptions and limitations associated with these methods and concludes with the importance of financial management and capital concepts in determining business risk.

Financial Management Report

Write a report estimating the costs of capital and its components for a selected company, and identify the main sources of finance used by the company.

   Added on 2022-11-30

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Financial Management Report
Financial Management Report_1
TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Different sources of finance...................................................................................................3
WACC....................................................................................................................................3
CONCLUSION..........................................................................................................................5
REFERENCES...........................................................................................................................6
Financial Management Report_2
INTRODUCTION
Financial management accounts for the effectively handling the financial resources
of the organization which helps in determining the risk and financial stability of the company.
In this report, Boohoo group plc is taken as an organization. This report provides an insight
about the estimation of the cost of capital of the company along with certain assumptions and
limitations associated with it.
MAIN BODY
Different sources of finance
With reference to the annual report of the organization, the company makes use of
the interest-bearing loans and borrowing for both short term and long term in the form of the
secured bank loan (Jhoansyah, 2021). In addition to this, the company has issued equity
shares in order to acquire the funds for meeting business requirements.
WACC
Amount in £’000
Interest on debt 390
Total Debt 13135
Tax rate 19%
Cost of debt After tax = 390*(1-19%) / 13135
= 2.4%
Cost of equity using CAPM
model
Risk free rate 1.10
Market risk premium (ERP) 7.8
Beta 1.60
Cost of equity = Risk free rate +[β x ERP]
= 1.10 + [1.60 * 7.8]
= 13.58%
Cost of equity using DDM
Dividend 3400
Net income 72883
Dividend payout ratio = 3400/72883 = 4.67%
Dividend per share 0.29
Shareholder’s equity 327935
Return on equity = 72883 / 327935 = 22.22%
Growth rate = (1- 4.67%) * 22.22%
= 21.1%
Dividend per Share in Next
Period
= 0.29 * (1+ 21.1%)
= 0.35
Current market price 318.6
Financial Management Report_3

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