Balance Sheet Structures
Balance Sheet Structures is a
practical and comprehensive guide to balance sheet issues. The book begins by covering the
financial theory necessary for an understanding of the debt versus equity issue and then
focuses on real world issues by discussing answers to the questions
- Why
do companies have balance sheets structured as they are?
- Do
industry differences rule the structure?
- Does
a multinational differ greatly from a domestic company?
- Does
management's attitude to risk have any effect?
These questions are looked at
through a series of case studies, mostly written by those who are responsible for the
balance sheet structures they are living with. The book also aims to help the reader
understand the interrelationship between debt and equity in terms of the overall value of
the company and the impact on the company's cost of capital. It covers the various
elements that make up the balance sheet, and the costs and benefits that attach to each
and goes on to analyse the interrelationship between the business that the company is in,
the maximisation of cash flows and the balance sheet that matches the business reality.
Balance sheet structures is
an invaluable and concise guide intended for a wide range of interested parties -
treasurers, bankers, directors and students of business and economics.
About the editor
Anthony Birts is currently
Teaching Fellow in Finance at the School of Management, University of Bath, UK where he is
also Director of the MBA Programmes. He did his MBA at Manchester Business School and
previously worked at the Bank of America NT & SA where he was Vice President of Global
Payments.
About the contributors
Stephen J East is Finance
Director of MEPC PLC and currently also Vice President of the Association of Corporate
Treasurers having previously chaired its publications, programme and education committees.
Michael McCallan is Vice
President and Treasurer, Esselte AB, the Swedish global office supplies company. He is
author of Re-engineering corporate treasury (ACT Business of Finance series) and is a
contributor to Managing banking relationships (Woodhead Publishing Limited).
Gary Crouch is a founder and
Finance Director of the Avebury Group, which since its inception in 1997 has grown rapidly
and now operates around 700 tenanted pubs throughout England and Wales.
Anthony Stern is Director of
Treasury at Bass PLC where he is responsible for treasury and banking matters covering
more than ninety countries in which the group operates through its Inter-Continental and
Holiday Inn hotels.
Tim Owen is Director of
Treasury at Cadbury Schweppes PLC, a company with a turnover of L4bn and a market
capitalisation of over L8bn.
Alan Clements is the Founder
President of The Association of corporate Treasurers and has a distinguished business
background having been Treasurer and a Main Board Director of ICI as well serving on
several other boards: David S Smith Holdings (Chairman); MGN PLC (Deputy Chairman); Cable
and Wireless; Granada; Trafalgar House (Chairman) and Guinness Mahon Holdings PLC.
Contents
1. Debt versus equity
A N Birts
Introduction
Purpose of the firm
The theory
The effect of imperfections
The capital asset pricing model
Conclusion
References and further reading
Appendix 1.1
2. Setting optimum
debt/equity ratios: theory and practice
A N Birts
Introduction
Factors that influence capital share structure: the empirical evidence
Practical implications
The international dimension
Conclusion
References and further reading
3. Elements of a group's
capital structure
Stephen J East
Introduction
Overview
The instruments
Classes of debt
Classes of equity
Combining potential instruments
Conclusion
Case study: Michael McCallan
- Parentco PLC - L80 million, 7% convertible bonds
Introduction
The company
Treasury risk management framework/financing plan
Convertible bond
Practical issues of negotiating and launching a convertible bond
Critical success factors
Conclusion
Appendix 3.1
4. Developing a capital
structure: practitioners' approaches
A N Birts
Introduction
Major factors for consideration
Forecasting
The broad issues
Access to markets
Cash effects
Conclusion
Case study: Gary Crouch -
Household Mortgage Corporation
Background
Equity raising
Equity structure
Preference share problems
Financing the business
Capital strains
Securitisation
The happy ending
5. The international
dimension
Anthony Stern
Introduction
Background
Holding structure
Tax
Control issues
Accounts
Case Study 1: Anthony Stern -
Parentco: the financing of foreign subsidiaries
Introduction
The company
The treasury risk management framework
Management philosophy and general funding approach
Financing issues of operating companies
Conclusion
Case Study 2: Tim Owen -
Financing the acquisition of Dr Pepper/Seven-Up
Introduction
Background
How much to pay?
How to finance?
The group of banks
The launch
Conclusion
Appendix 5.1: The underwritten enhanced scrip dividend alternative (UESDA)
Appendix 5.2: Preferred securities
Appendix 5.3: Principal terms of the bank facilities
6. Dividends
A N Birts
Introduction
The theory
Imperfections
Three points of view
Empirical evidence on dividends
Summary of the theory
Practicalities
Conclusion
References and other reading
Appendix 6.1
Appendix 6.2
7. Managing stakeholder
perceptions
Alan Clements and Moody's New Instruments Standing Committee
Introduction
The company perspective
The theory
The 'buts'
The real world
Shareholders
Analysts
Bankers and lenders
Rating agencies
Other stakeholders
Conclusion
Moody's tool kit: a framework
for assessing hybrid securities
Overview
Introduction
Section 1: The nature of equity and its replication in hybrids
Section 2: Placing the hybrid security on the debt-equity continuum
Section 3: Application of Moody's Tool Kit
Section 4: The impact of hybrid securities on an issuer's credit quality
Section 5: A case study
Section 6: Conclusion
Appendix 7.1
Appendix 7.2
Appendix 7.3
Index
190 pages