FIN5FMA: Capital Structure and Financial Policy at Fortescue Metals

This report analyzes the capital structure of Fortescue Metals Group Limited, focusing on its financial policies and their impact on the company's performance. It examines the debt-to-equity ratio, long-term debt to equity ratio, and total debt to capital ratio across the years 2014 to 2017. The analysis indicates that Fortescue follows a liberal policy in maintaining its capital structure. The report references several sources to support its findings, including academic publications and financial data from Morning Star. It was prepared for a strategic retreat presentation to the Senior Leadership Group, including the CEO and Board of Directors, as part of the Financial Management Assignment 1 (FIN5FMA) for Semester 1, 2018.

Management Finance
Capital Structure Theory

Introduction
Capital structure is a theory which
can be referred to as a systematic
approach used to finance the
activities.
The accumulated component of the
debt as well as the liability is
discussed under this factor.
It is important for the Fortescue
Metal Group Limited to have an
optimal capital structure.

Types of policies
There are three types of policies
◦Liberal policy
◦Reserved Policy
◦Moderate Policy
◦Fortescue followed the liberal policy
of maintaining the optimal capital
structure.

Ratios under Capital
StructureDebt to Equity Ratio
Debt Equity
2014 9809 8035 1.22
2015 11855 9797 1.21
2016 8437 11301 0.75
2017 4749 12637 0.38
Long Term Debt To Capital Ratio
Long Term Debt Equity
2014 9648 8035 1.20
2015 11664 9797 1.19
2016 8327 11301 0.74
2017 4646 12637 0.37
Total Debt to Capital Ratio
Total debt Equity
2014 12585 8035 1.57
2015 15818 9797 1.61
2016 12538 11301 1.11
2017 9351 12637 0.74

References
Arvin Ghosh, Capital Structure and Firm
Performance, (Routeledge, 2017) 11.
Dan Givloy, Carla Hayn, Sharon Katz, The
changing relevance of accounting information
to debt holders over time (Springer, 2017).
John R. Graham, A century of capital
structure: the leveraging of corporate
America (Elsevier, 2014).
Morning Star, Fortescue Metals Group Limited
(27th May 2018)
<http://financials.morningstar.com/income-
statement/is.html?t=FMG&region=aus>