Capital structure for Diageo

Introduction and Background Diageo was formed in 1997 through the spinal fusion of two consumer w atomic number 18 companies Grand metropolitan plc and Guinness plc under the schema of reducing cost through marketing synergies, cutting command overhead expenses and increasing output signal and purchasing efficiencies. The new jointure indigenceed to concentrate only when on the beverage alcoholic drink business, so it sold its packaged foods (Pillsbury) and fast food (Burger King) businesses. art object the mandate for Managing for Value came from the highest aims of Diageo, the exchequer team was given the designate of establishing the cost of capital for to each one of the different areas the beau monde operated. The team had to create a manikin model which should choose new finance approaches, treasury functions to sharpen on, what the firms risk footprints depart be, how to calculate cost of capital and ultimately how to optimally building capital. How has Diageo managed its capital structure? Both Grand Metropolitan and Guinness had niggling debt prior to the merger, which allowed them to benefit from relatively high ratings on their bonds (AA and A respectively). Straight after the merger, Diageos management announced it would fight tolerate similar policies to the ones adopted by the two previous companies. This expiration took the form of an implicit promise non to get into a debt direct that would lead to a reduction in the character pen rating of the company, which was aiming at an interest coverage between 5 and 8.

A second target was set to keep EBITDA/ sum Debt at 30%-35% level. This tranquilized investors and financial markets and as a law of closure the compan! y was given an A+ rating by endorse agencies. Table 1 presents some key financial indicators extracted from the case. As it keep be observed, Diageos debt level is low (market gearing level is more or less 25%), which together with the favorable... Where are the tables??? This contains just the plain text. It is not useful without the Excel tables. If you want to get a full moon essay, order it on our website: OrderEssay.net

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