Capital Structure Analysis of Panasonic Manufacturing Berhad, Malaysia

This report presents an analysis of the capital structure of Panasonic Manufacturing Berhad, a company listed on the KLSE stock exchange, focusing on the years 2014 and 2015. The objective is to evaluate the types of financing utilized by Panasonic and provide recommendations for future funding strategies. The analysis involves calculating key capital structure ratios, including the debt-to-equity ratio, debt ratio, and equity ratio, to assess the proportion of debt and equity financing. The report highlights the company's reliance on equity capital, particularly retained earnings, while also examining the use of current and non-current liabilities. Furthermore, the report explores potential sources of financing that Panasonic could leverage, such as overdraft financing, bank loans, and equity share capital. The findings indicate a strong capital structure for Panasonic and offer insights into optimizing its financial strategies.

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Capital Structure evaluation of company listed on KLSE

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Capital Structure analysis of Panasonic Manufacturing Berhad Malaysia
In order to evaluate the capital structure policy of company listed on KLSE stock
exchange, it has been decided to select Panasonic Manufacturing Berhad Malaysia as it was
listed on KLSE stock exchange. The objective of this report is to make analysis of type of
financing used by the Panasonic during year 2014 and 2015 and recommendation are provided
for various sources of financing that company can used to make available the required funds.
Types of financing by Panasonic Manufacturing in year 2014 and 2015
There are mainly two sources of finances that is used by companies to finance the various
capital needs such as working capital and to purchase the fixed assets. To evaluate the types of
financing used by the Panasonic there is need to calculate capital structure ratios of Panasonic for
year 2014 and 2015. Important capital structure ratios are debt to equity ratio, debt ratio and
equity ratio.
Debt equity Ratio: This ratio tells proportion of debt and equity capital held by the company to
use them in financing the assets of the company.
Formula: Liabilities/Equity (Ross, Jaffe & Kakani, 2008)
Debt to equity ratio 2014 2015
RM ' 000 RM '000
Total Liabilities 167859.00 184767.00
Shareholders’ Equity 663268.00 718462.00
Debt to equity ratio 0.25 0.26
(Annual Report, 2015)
The above debt equity ratio shows that mostly of the assets are financed by the equity
capital and rest is financed by the equity capital. This ratio indicates capital structure of
Panasonic is dividing in proportion of 0.25/1.00 times or ¼ times of debt to equity capital in year
2014 and 0.26/1.00 times of debt to equity capital in year 2015. There was increase in debt
equity ratio but the increase was very nominal. The debt equity ratio capital of Panasonic was
very strong that indicates strong capital structure of the company.

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(Source: Annual Report, 2015)
So, it can be said that Panasonic has mainly used the owner’s capital to finance the assets
like retained earnings and equity capital. In debt capital, Panasonic has used trade payable and
other liabilities to finance the very small part of assets of the company.
Total Equity: Following graph represents the type of equity capital used by Panasonic Company
Analysis of equity capital
Equity Capital 2014 2015
Share capital $ 60,746.00 $ 60,746.00
Retained earnings $ 602,522.00 $ 657,716.00

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2014 2015
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
$600,000.00
$700,000.00
Equity Capital
Amount in RM
Sources of Financing that can be used by Panasonic Manufacturing Company
Panasonic can gain funds from the following sources of finances as follows:
Current Liability
The company can adopt the use of overdraft financing as a current liability source of
finance. Overdraft financing enables a business to gain short-term funds enabling a business to
make payments form their current business account by exceeding the available cash balance.
This refers that the bank allows customers to borrow a determined amount of money (Davies &
Crawford, 2011).
Non-current Liability
The company can also adopt the use of bank loans having a repayment period of more
than 5 years having a fixed installment at every regular interval of time. They are considered as
an important means of long-term financing for the company which requires paying the interest
usually on half years. Bank loans are regarded as the most secure type of long-term finance that
is associated with less financial risk.
Equity
Share capital can be regarded as the prominent type of equity financing that can be used
by the company. It is a long-term type of finance that adopts the use of money invested by the
shareholders and in turn providing a share of ownership to the company. The major benefit of
using share capital as equity source of finance is that is a most convenient type of financing
options as the funds can be gained internally within a business. On the other hand, the major
drawback of the method is that it poses a fixed burden on the company as it requires paying
dividend at fixed rate (Brigham & Michael, 2013).

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References
Annual Report. (2015). Panasonic Manufacturing Malaysia Berhad. Retrieved October 18, 2018,
from http://pmma.panasonic.com.my/wp-content/uploads/ar2015.pdf
Brigham, F., & Michael C. (2013). Financial management: Theory & practice. Cengage
Learning.
Davies, T. & Crawford, I., (2011). Business accounting and finance. Pearson.
Ross, A., Jaffe, J. & Kakani, R.K. (2008). Corporate Finance. Pearson.