In this module, we discussed how the optimal capital structure can vary considerably across companies. You explored some of the theories of capital structure and compared capital structures. You also learned how to evaluate a firm’s capital budgeting policies, planning, structure, and cost.
In this activity, you will select a public company to investigate and write a brief report on that company’s capital budgeting policies, planning, structure, and cost. The best way to begin your investigation is to think of a company that interests you, and then visit its website to locate its latest annual report. You can usually find annual reports via the Investor Relations link at the bottom of a company’s home page.
(10 pts for organization, clarity, and completeness; a relative measure in comparison to peers)
Your report should be no longer than three pages, and it should include the following:
- What is the company’s mission statement? (10 pts)
- How does the company’s capital budgeting policy attempt to maximize the earnings per share and shareholders’ value? (10 pts)
- How does the company choose projects and investments that will add value to the firm? (10 pts)
- Based on what you find out in the annual report or other online information sources, what type of risk profile does the company have in its capital budgeting policy: a conservative policy, a moderate policy, or a high-risk policy? Explain your observations and reasoning for your choice. (20 pts)
- What approach to capital budgeting planning does the company take: an aggressive-growth plan, a normal-growth plan, or a low-growth plan? Explain your observations and reasoning for your choice. (20 pts)
- What changes, if any, has the company made to its capital budgeting policy during the past year? (10 pts)
- Do you think the company’s capital budgeting policy is consistent with its mission statement? Explain why. (10 pts)
Often, you can get an overview of a company’s policies near the beginning of its annual report in the form of a chairperson’s message, an annual letter to shareholders, or a brief outline from the executives of the corporation. This will provide some clues as to where to search for details in the report. For instance, John Deere, in its Deere & Company 2017 Annual Report, includes a Chairman’s Message, which reads in part:
Our performance enabled us to make continued investments in advanced products, technologies, and growth-oriented products, technologies, and growth-oriented projects. For the year, Deere devoted almost $2billion to research and development and capital expenditures. In addition, we returned $764million to investors in the form of dividends.
[source: Chairman’s Message, Deere & Company 2017 Annual Report, at