Capital structure is a term used to refer to the ways in which a company finances its operations in general and how it gets funds to support its growth in the field that it operates (Baker & Wurgler, 2002). Capital structure is very important for any serious company because it forms that base of the companys operations and therefore determines the wellbeing of the company (Myers, 1984). There are various ways that a company can finance its operations and overall growth. These ways include debts that provide funds for expansion among other ways. In this paper we briefly compare and analyze the capital structure of Coca Cola Company and Nike.
Coca cola is a company that sells non alcoholic beverages as well as bottled water in a number of nations worldwide. This company funds its operations mainly through the sales collected from the selling of its products such as soda and other drinks. Even though Coca Cola Company borrows from its shareholders to champion its agenda of expansion and spread its services and products to many nations, the debt-to -equity ratio of Coca Cola Company is normally very low due to the fact that the beverages sold by Coca Cola Company are categorized as foodstuffs which human beings can almost not do without. On the other hand, Nike deals with production, distribution and selling of sport attires specifically shoes and jerseys. Nike finances its operations for growth by doing a lot of promotions and partnership that helps them to get contracts with clubs participating in various sports (Ramaswamy, 2008). This therefore leaves Nike at a juncture where it has to pump in a lot of money into financing the promotional operations. This leaves Nike with a huge debt-to-equity ratio that makes Nikes business very risky to many people. The revenue collected from the contracts that Nike makes with the various clubs and players assists them to collect funds so as to be able to expand their business. However, its well being depends on how well a player for example or a club performs in that particular sport. Even though debts overwhelm Nike, they are very important for they provide funds that spur the operations of Nike and more benefit than the interest paid.
In conclusion, The capital structures of these two companies very due to the fact the companies have different ways of sourcing funds to finance and support their operational growth. It is also important to note conclusively that capital structure analysis helps as to compare the two companies and find that the Nike business is more risky that Coca Cola Company.
Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The journal of finance, 57(1), 1-32.
Myers, S. C. (1984). The capital structure puzzle. The journal of finance, 39(3), 574-592.
Ramaswamy, V. (2008). Co-creating value through customers' experiences: the Nike case. Strategy & Leadership, 36(5), 9-14.
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