Corporate Finance Funding and Capital Structure

Question: Describe about the Corporate Finance for Funding and Capital Structure. Answer: Introduction Corporate Finance is the field of finance which deals with the source of funding and capital structure of the organizations. The main objectives of the corporate finance are to increase the value of the company to the stakeholders of the firm and the optimal allocation of the financial resources. Wesfarmers has been chosen for this report. 1: Wesfarmers is a conglomerate company in Australia. The company has a lot of operations in various field of business like retail, coal mining, fertilizing, chemicals and many others. Wesfarmers has a very attractive dividend policy for their shareholders. As per the adopted dividend policy of Wesfarmers, the company believes in delivering growing dividends each tear. It defies that the company use to increase the percentage of dividends each and every year. However, the amount of dividend depends on various factors like the earning of the company, cash flows and available franking credits. Over the years, the company has been giving a significant amount of money as the dividend. Wesfarmers has given $ 1,070 million in the year 2015 and $ 1,247 million in the year 2016 as the final dividend to its shareholders (www.wesfarmers.com.au 2016). Payout Ratio (2015) = Dividends/Net Income = $ 1,247 million/$ 2,440 million = 0.51 (approx) Payout Ratio (2016) = Dividends/Net Income = $ 1,070 million/$ 407 million = 2.63 (approx) Dividend Yield for the year 2015 was 4.74 per cent and for the year 2016 was 4.74 also. 2: The most appropriate way to convey the financial information to the market is the annual report of the company. A well designed annual report of a company reflects the true image of the financial position of that company. In this case, the dividend policy is an important tool. A strong dividend policy helps to create a good image of the company to the investors. In the case of Wesfarmers, the company has declared its dividend policy in the annual report of the year 2016. As per the policy, Wesfarmers wants to increase the rate of dividend each year based on the financial performance of the company (Rondi et al. 2013). The marginal stockholders of the company are the other companies, groups, individuals and many others (www.wesfarmers.com.au 2016). As per annual reports of the company, the company use to give as dividends as well as issue buyback shares. Wesfarmers has a more lucrative dividend policy compared to the other firms in the same sector. 3: Wesfarmers is a company which is well known for its remuneration structure for the directors and the executives. The company follows a certain structure while giving remuneration and incentives to the senior management. The remuneration structure of Wesfarmers for the senior management is consists of three parts. They are the fixed annual remuneration, short term annual incentives and long term annual incentives (McNulty, Florackis and Ormrod 2013). The structure implies that the senior management is subjected to receive a fixed portion of remuneration irrespective of their performance. On the other hand, there is some short term as well as long term incentive plans for the senior management of the company. As per the guideline principles, the incentive structure for the senior managers should in such a way that it encourages the senior management act as the owners of the company. The short term and long term incentives are given to the senior management as per their performance t o run the business of Wesfarmers (Pepper, Gore and Crossman 2013). 4: The main objective of Wesfarmers is to create a strong portfolio of business that will provide the satisfactory return to the investors of the company (www.wesfarmers.com.au 2016). There is a strong relationship between the objective of the organization and the remuneration plan of the senior management of Wesfarmers. The objectives are feasible and can be benefitted by the remuneration plan as the success of an organization depends on the performance of the senior management team. Looking at the improving economic condition of Australia, the current economic condition of Wesfarmers is growing towards high. However, the economic recession will hinder the way of the plan. The shareholders will take the remuneration plan in a good way as the plan will help them to gain higher returns; but there are some economic critics who can react to the plan in an adverse way. Conclusion As per the whole report, it can be seen that Wesfarmers has a dividend policy which allows the shareholders to gain more percentage of dividends every year. On the other hand, remuneration and incentive plan of Wesfarmers helps to achieve the ultimate objective of the company. References McNulty, T., Florackis, C. and Ormrod, P., 2013. Boards of directors and financial risk during the credit crisis.Corporate Governance: An International Review,21(1), pp.58-78. Pepper, A., Gore, J. and Crossman, A., 2013. Are long?term incentive plans an effective and efficient way of motivating senior executives?.Human Resource Management Journal,23(1), pp.36-51. Rondi, L., Cambini, C., Bremberger, F. and Gugler, K., 2013.Dividend Policy in Regulated Firms. University Library of Munich, Germany. Wesfarmers.com.au. (2016).docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8. [online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8 [Accessed 22 Oct. 2016]. Wesfarmers.com.au. (2016).Investors. [online] Available at: https://www.wesfarmers.com.au/investor-centre [Accessed 22 Oct. 2016]. Wesfarmers.com.au. (2016).Who we are. [online] Available at: https://www.wesfarmers.com.au/who-we-are/who-we-are [Accessed 22 Oct. 2016].