Finance

American Superconductor is the leader in alternate energy, providing electric power infrastructure generation to distribution through two main business units AMSC power systems and AMSC Superconductors. American Superconductor is a publicly listed company. After years of losses and shortage of cash, the company has finally indicated profit of 1.3 million for first quarter of 2009.  

Capital Structure
Since equity and debt financing solely do not provide all advantage of earning profits for a firm, therefore, a mix of both in capital structure is often opted by most firms. Companies with high debt to equity ratio are often expected to earn higher returns since the interest payments on debt are tax deductible thereby, lowering the cost of debt. Also the debt raised by a company generates liquidity as well more avenues to invest in.
The interest payments from a debt holding firm are constant irrespective of profits or losses and therefore, save a lot of cost during period of profits. In case of high debt to equity ratio, the firms management reserves most of the rights regarding decision to be taken in firm as well as retain as much earnings as they want for future projects since there are less claims from equity holders. The ownership of business also remains in few hands. On the other hand, a capital structure inclined towards equity raisings face a number of challenges for firms that are in less liquid position and require cash injections for business expansion. However, this argument has its own limitations. The debt capital structure is more valid for firms with profitable income statements so that the debt costs are met on time. Whereas, a firm facing huge losses cannot bear the burden of constant interest payments that have to be paid irrespective of companys profitability position. The burden of payments to creditors can result in bankruptcy and reputation sabotage for less profitable firms. Lack of ability to pay debt payments is also most likely to result in disability to pay the limited amount of shareholders their earnings.

Equity financing is suitable for organizations that have weak financial position and profits are witnessing a hit affecting debt costs and therefore, earnings. A higher equity percentage in the capital structure impacts the financial ratios of the company positively.

100 equity financing

During 2003 blackout, the demand for relieving agents for overload on power grids resulted in high demand for American Superconductors stocks and the result was a 42 surge in companys stock. The investors expected that the demand for AMSCs wires will increase to control the power grid congestion.  The company took this situation as an opportunity and the managers and board of directors decided to forgo debt financing of 50 million and adopt an equity financing strategy.

AMSC improved its balance sheet by raising around 51.1 million from sale of shares, thereby increasing the liquidity position of company. Despite huge losses, the conversion to equity based capital structure resulted in minimization of interest costs, savings millions of dollars for AMSC.

There are several benefits that AMSC gained from converting to 100 equity. Firstly, the company being in hole of losses was unable to generate returns for its shareholders and to worsen that, the interest payment put a huge burden on companys already worse financials. The conversion to 100 equity resulted in huge gains from sale of shares and released the firm from interest payments saving millions of dollars.

Secondly, the reputation and credit ranking of firm was secured which in turn saved the firm from insolvency or bankruptcy. Thirdly, the increase in demand for AMSCs products generated first profitable quarter for the firm which could be positively utilized instead of interest payments. The Debt to Equity ratio would have increased and debt would have gotten more and more expensive for the company thus increasing the interest expense of the company and it may have never became profitable.

Financial Highlights
Analysis of firms decision regarding new capital structure can also be analyzed from financial perspective by looking at its income statement and balance sheet.
AMSC Income Statement (Amt in millions)
SalesEBITDepreciationTotal Net IncomeEPS0308112.4-22.5710.1-25.45-0.65030752.18-34.784.8-34.68-1.04030650.87-30.887.48-30.88-0.94030558.28-19.666.55-19.66-0.7030441.31-26.736.31-26.73-1.1030321.02-87.638.01-87.63-4.21030211.65-56.995.51-56.99-2.79030116.77-21.684.32-21.68-1.08030015.06-17.62.25-17.6-1.11Source Msn Money
The table above indicates an increase in sales revenue of AMSC from 15.06 million in 2000 to 112.4 million in 2008. On the other hand, the EBIT of AMSC decreased from -87.63 million to -22.57 million. The net losses have decreased though not completely covered due to less earnings of firm. The EBIT and Net income are similar due to exclusion of interest payments.
AMSC Balance Sheet (Amt in Millions)
Current AssetsCurrent LiabilitiesLong Term DebtShares Outstanding0308261.2352.780.041.5Mil0307132.4330.810.035.0Mil0306133.4718.370.032.9Mil0305158.9215.410.032.5Mil0304129.914.450.027.6Mil0303101.9814.160.021.3Mil0302197.7925.630.020.5Mil0301239.9312.360.020.3Mil0300248.917.970.019.7MilSource Msn Money
As indicated in table, long term debt continues to be zero whereas the number of outstanding shares can be seen increasing from 19.7 million shares to 41.5 million shares.

American Superconductor is a technology related firm that undertakes several projects, resulting in both profits and losses. Such list of successful and unsuccessful ventures pose negative impacts on the balance sheet and income statement of company. Since the company was facing huge losses, it was not feasible for the firm to continue with debt financing since the interest costs were too high. With conversion to 100 equity, the management has undertaken a wise decision, considering the declining credit rating of company. The company has already posted a positive return for the quarter and after a series of such profitable quarters it can improve its financials and later optimize its capital structure utilizing both equity and debt financing.

Part One
    The article Why People Dont Help in a Crisis by John M. Darley and Bibb Latane talks about situations wherein people are not able to help others in times of crises and immediate need. This is based on the assumption that these bystanders are mostly unconcerned and depersonalized. The article enumerates various situations and cases, as well as experiments conducted by the authors regarding the responsiveness of people during these times of crises. The article is concluded by saying that bystanders to an emergency arent really unconcerned and depersonalized instead, they are often anguished and doubtful of their actions, torn between doing the right thing and the pressure of stress and fears. The language and the situations used in the article by the authors is directed to an audience of professionals and practitioners in the field of Psychology in order to understand how people react and interact when confronted with a crisis situation.

Part two

A. Logos
    The author establishes the logos of this article by citing several events which show bystanders responsiveness during times of crises. The type of claim the author pose in this text is factual, wherein he makes inferences about the past and present situations related to this matter. This type of claim affects the logos by affirming the credibility of the text, since it shows that the claims are based on actual occurrences. Also provided were several evidences to support their claim, including expert testimony, personal experiences, and hypothetical cases. The authors cite experts but fail to mention their specific names and titles, addressing them only by their jobs. Hypothetical situations were used to establish certain claims regarding bystander responsiveness, and this is either affirmed or debunked using personal experiences through experimentation.

    The evidence used in this article exhibits characteristics of science, because most of them are gathered through experiments and case studies. They conducted these experiments on unassuming respondents in different scenarios. These are scientific evidence because it can be repeated and followed a scientific procedure. Based on the initial assumptions of the authors, we can say that the argument used is deductive, or from a general idea to specific ones. Its because they had to base their experiments first on the assumption that bystanders are generally unresponsive because they are apathetic and unconcerned with other people. They were somehow able to prove and disprove these assumptions through the case studies and experiments performed regarding this matter. This argument contributes to the development of logos because we are able to follow the train of thought of the article, wherein we understand its purpose and the logic behind it.

B. Ethos
    Ethos is established in the article through the language used by the authors in writing it. First of all, the authors are both educated professionals, degree holders in the field of Psychology in well-known universities. We can clearly see from their writing that they are knowledgeable of the topic, and their discussions are backed by outstanding credentials and several years of experience in this field. The authors tone is conversational but authoritative. They understand very well what theyre talking about, and this is evident with their thorough discussions of their experiments and case studies. This impacts the persuasiveness of the text by making it more credible, more convincing that indeed, the authors know very well the topic.

    This particular text is written in order to determine why some people dont help in times of crisis. They aimed to identify situations and factors that relate to a persons responsiveness when others need immediate help. Through the use of successful experiments and case studies, the authors were successful in determining the reasons why some people dont help others in times of need. They were able to let the readers know what could possibly go through the minds of these people, and they were able to debunk the notion that these people are apathetic and unconcerned. The authors failed to address any rebuttals or exceptions because they focused more on the results of their experiments. They based their final words regarding these topics on whats reflected in these experiments. With the language and tone used by the authors, the intended audience was professionals and practitioners in the field of Psychology. Its because the focus of the study was to understand how people think in these situations, to know the reasons behind their action or inaction so that we maybe able to understand their situation more. The text is written to appeal to their specific audience by using the actual results of their experiences as a basis to their claims. Since theyre targeting educated audience knowledgeable in the field of psychology, they presented the results in a manner that they would believe statistics and actual results from the experiments.

C. Pathos
    The emotion elicited by the text is understanding and relief of the reasons why some people dont help in times of crisis. Because of the scientific approach to the topic, the audience is able to understand why indeed some are unresponsive even when confronted with such situations. By clearly explaining the facts behind this matter, the audience is able to understand it fully and be relieved from thoughts of apathy and unconcern from others. There isnt much bias evident in this article, though at some point, the authors are clearly leaning towards proving that unresponsive bystanders are also feeling something. This is because most of their experiments end up with similar results, so at the end, they were convinced that indeed, human emotions overcome bystanders when confronted with these situations. In this article, one hindrance to critical thinking is inattentional blindness. However, an opponent to this argument may also say that a bystander has no obligations whatsoever to the other person in a crisis situation. He might as well say that hes also looking out for his own welfare. Instead of inaattentional blindness, this could be taken as avoidance of the situation. Another defense would be the avoidance of legal obligations, in case someone sues for wrong doings. Again, it is merely an avoidance of the situation rather than cause more damage to the victim.

D. Overall Analysis
    The strength of this article lies on its logos. The article makes a factual claim, based on actual events and situations cited by the authors. They were also able to identify evidences from personal experiences, and most importantly, the results of experiments and case studies. Because of this, the article establishes a strong credibility which it further builds up as it identifies several concepts related to the topic.
    The weakness of the article is its pathos. The authors adopted a language that is conversational and authoritative, but it is more of a retelling of the results of their researches. It is not very appealing to the audiences emotions, which is why the arguments seemed weak and unassertive even though they were based on facts and results of actual experiments.

Banks are the largest financial institution for century, and banks have enjoyed financial growth for several decades.  Financial capacity of some banks is more than overall resources of some countries such as Gambia or Guinea. For example, most banks in the UK enjoyed rapid growth where the FTSE 100 index recorded increase from 2003 to 2007. Typically, between 2003 and 2007, many banks in the UK declared surplus dividends to their shareholders. However, since 2007, many financial institutions in the UK are facing financial turmoil, and many big banks announced that there was scarcity of liquidity at their disposal. With reflection of this, FTSE index started to show negative sign of downward returns since 2007. (See fig 1 for the FTSE 100 banks index ).         

However, with the negative decrease of FTSE 100 index since 2007, the   Royal Bank of Scotland (RBS), which had enjoyed positive increase since 2003 till 2007, started showing negative downward in the price index between 2007 and September 2009.
The objective of this report is to provide relevant causes of the downward decrease in price index of RBS between 2007 and September 2009.
To demonstrate the causes of the downward trends of price index of RBS, this report employs factors such as the collapse of   Northern Rock effect of bankruptcy of Lehman Brothers, Government policy and economical market.

1.1 Overview of Royal  Bank of Scotland
Royal Bank of Scotland is a British government largest bank. The bank started its operation in 1727, and since the inception of its operation, the bank has enjoyed a leading position in the banking sector in the UK.  Apart from the UK, RBS is one of the largest financial institutions in the world with capitalisation of 44.4 billion. Apart from having corporate headquarter in Edinburgh in the UK, the RSB also operates in US, and other international markets through other subsidiaries such as Citizens bank in the US, which is one of the largest bank in the US. Typically, since its operation, the RBS has enjoyed buoyant financial position.  The total assets of RBS have reached approximately 1,900.5 billion with total equity reaching 53.0 billion.  Meanwhile, the banks RBS provides different services in its business activities.  Apart from providing personal and corporate banking, RBS also provides risk management services and debt financing  to different corporate organisations worldwide. Through range of services provided, the bank has distributed service networks, which include money transmission, savings, mortgage, and loans to individual, small, medium and large corporations around the world.  (Annual Report and Account, 2008).
For several decades, the RBS has enjoyed rapid financial growth. Analysis of financial reports of RBS revealed that since 2003, the RBS enjoyed rapid increase in price index between 2003 and 2007.  However, from 2007 to September 2009, RBS suffered from downward trend in the price index. What are the causes of this decrease in the RSB price index between 2007 and September 2009. This report analyses several factors that might lead to the decrease in the price index of RBS.

1.2 Analysis  of  factors responsible for the decrease in the price index of  RBS between 2007 and September 2009.
Scholars and economist analysts have provided different factors that might have led to the downward trend of the price index of RBS between 2007 and September 2009. Yorulmazer (2009) argued that the spill of Northern rock financial crisis led to the fall of   major banks in the UK including UBS.
Northern Rock Financial Crisis  Northern rock was the fifth largest mortgage providers in the UK. Since 1997, the Northern rock enjoyed rapid growth till 2007. Thus, in 2007, Northern rock recorded large fall out when the effect of sub-prime lending that led to the collapse of many mortgage banks and commercial banks swept to the UK. The dry up of liquidity  of many mortgage banks in the US through sub-prime lending affected Northern rock where  Northern rock  closed some of its financial activity  including   providing long term loan in mid 2007.  To come from its financial turmoil,   Northern rock asked for bail out from Bank of England, which was granted on the 13 September 2007. The news that the Northern rock had faced liquidity crisis swept like fire, and the effect of the news had caused panics in the mind of the UK population, other investors around the world. Thus, the financial crisis that faced Northern rock had a spill over to major banks in the UK. Meanwhile,   between September 14 and September 17, top 10 banks in the UK started recorded abnormal negative returns on the stock prices. It should be noted that these top ten banks in the UK formed 90 of total banks asset in the UK. Thus, with collapse of Northern rock, all these top 10 banks   started recording negative returns. Moreover, the FTSE share price index also recorded decrease in price. The RBS being one of the top ten  banks in the UK recorded  negative returns of  -0.7 in September 14 and -4.3 in September 17.(See table 1 for the returns of FTSE and top ten banks in the UK in September 14 and 17 2007). (Yorulmalzer, 2008).
Table 1 Returns of FTSE and major banks in the UK between September 14 and 17 2007
                                   
FTSE and top 10 banks in the UK14 September 200717 September 2007Abbey -0.7-1.0AL -6.9-31.3Barclays -3.1-2.5B  B-7.7-15.4HBOS-3.6-5.5HSBS0.20.7Lloyds-2.7-1.3NR-31.5-35.4RBS-0.7-4.3SC-1.4-1.7FTSE -1.3-1.7
Source (Yorulmalzer, 2008).
Apart from the collapse of Northern rock that that led the decrease of   FTSE index and decrease of RBS price in 2007. Another major event was struck in the USA, which affected the FTSE index and the price of RBS. The bankruptcy of Lehman Brothers in 2008.
Bankruptcy of Lehman Brothers Apart from the financial crisis of Northern rock in 2007, another major event that led to the collapse of many financial institutions worldwide was the news of bankruptcy of Lehman Brothers.  In 2008, the Lehman brothers sent a wave of shock to the financial circles around the world when the Lehman brothers declared bankrupt in  2008. The action of Lehman Brother sent a wave of shock to the financial institutions in the USA and the UK. The major reason for this shock was   that Lehman Brothers Holding Inc was one of the world leading global financial institutions.  Before Lehman brothers was declared  bankruptcy in 2008, this  financial institution had  participated in many major financial deals which included investment management, investment banking, private banking, and so on. Lehman Brothers was the major dealer in the market of U.S Treasury securities.  Apart from Lehman Brothers Inc and Lehman Brothers Bank, this financial institution had many subsidiaries, which included SIB Mortgage, FSB etc.
Apart from its major operations in the United States, the Lehman Brothers Holding Inc had offices around the world, which included Tokyo and London. Meanwhile, in August 2008, the Lehman Brothers Holding Inc declared bankrupt with debt that worth 613 billion, and bonds debt that worth 155 billion. (Mamudi, 2008).
Meanwhile, the collapse of Lehman brother was recorded as the biggest collapse of a financial institution after 1930 great depression. Thus, the effect of this collapse swept panic to the mind of investors around the world, and it led to rapid decline of shares of several financial institutions. For example, in the UK, the index of FTSE 100 fell by 212.5 points, and there was decrease in price index FTSE 100 by 4. (The Times, 2008).
With the collapse of Lehman brothers, many investors in the UK disinvest with major banks. During this period, Royal Bank of Scotland suffered dramatic lost in share prices. For example, the shares price of RBS fell by 13 in mid September 2008, and the overall results led to the decrease in share prices of RBS   in 2008.  (Malhotra,2008, Harrison, 2008). Apart from the collapse of Northern Rock and Lehman Brothers. The analysts also argued that economical market  also lead to major decrease in FTSE price index and consequently decrease in the prices of RBS.
Economical market The UK economic market has recorded significant decline in 2007. It should be noted following the effect of credit crunch that have affected the US economy where there was  fall of several mortgage banks due to the sub-prime lending. The UK economy was affected by the effect of credit crunch. For example, major economic market of the UK economy crashed because of   the effect of credit crunch.  Walayat (2007) argued that there was a major rash in the UK house market between 2007 and 2008, and there was fall of the UK banking sector. For example, the stock price of many UK mortgage banks fell by more than 50.
Fig 2 The share  price of Royal Bank of Scotland Group  between 2006 and 2009

                                        INCLUDEPICTURE httpmorningstar.timesonline.co.uktimesonlineimagescharts16chart.png  MERGEFORMATINET
Source The Times, 2009
In addition, the Royal bank of Scotland recorded losses 1.6 billion in 2007 as a result credit crunch. (Business Scottish, 2008).
Thus, the effect of this cumulative effect led to the loss of confidence on the part of investor, and the result led to the drastic decrease in the price of RBS between 2007 and September 2009.
It should be noted that before 2007 only few people had ever heard the word credit crunch. Thus, the aftermath of credit crunch, there was financial crisis facing many top banks around the world. (BBC News, 2009).

However, not all the factors enumerated above led to the decrease in the price of RBS. The government policy has also had major impact on the price of RBS.
Government policy the government was controlling the major shares of the RBS. Typically, the government controls 68 shares of the asset of   RBS. Thus, with the major control on the bank, the RBS may not be free to make initiation regarding the investment that may be profitable to the bank. Moreover, many investors might have the belief that the privately owned banks might perform better than the government control bank. 

This report provides the picture of the decrease of FTSE 100 price index between 2007 and 2009.  Moreover, the report shows that the decrease in the price index of the FTSE 100 affected the price of Royal Bank of Scotland between 2007 and September 2009. The report discuses several factors that led to the decrease in the price of RBS between 2007 and 2009. One of the major factors that led to the decrease in the price of RBS was the collapse of Northern Rock in 2007 that swept the panic to the mind of major investors in the UK. Moreover, the report also reveals that the collapse of Lehman brothers in 2007 which was one of the biggest financial institution in the world. Apart from the two major factors, the UK economic market and government policies also affected the decrease in share prices of RBS from 2007 to September 2009.


Despite the   major crisis facing the banking sector in the UK, the Royal Bank of Scotland remains one the biggest bank in the UK.  For example, the report published by the Business Scotsman (2008) revealed that RBS recorded 10.3 billion in 2008. In 2007, which was the start of the banking crisis, RBS recorded 9 rise in annual net profit.  The chairmans statement also revealed the positive performances of RBS
    RBS enjoyed another successful year in 2007 despite some of the most challenging market     
      conditions in the financial and credit markets for some time. The hard work of our
     employees allowed us to deliver a strong financial and operational performance as well as
     successfully completing the acquisition of ABN AMRO, the largest banking acquisition
     ever undertaken. In 2007 the Groups total income grew by 11 to 31,115 million and
     operating profit increased by 9 to 10,282 million , with adjusted earnings per ordinary
       share rising 18 to 78.7p. (Mckillop, 2008,  p1).
Thus, the report argues that the decrease in the whole price index FTSE 100 and decrease in the price of RBS are not the overall decrease in the performance of RBS.
This report enhances the greater understanding of the financial investors, banking organisation, academic community and private individuals.

1. What is the key issue
    After reading and analyzing the case (in Bartlett, Ghoshal  Beamish, 2006, p. 665-682), it is quite apparent that the primary issue is the companys lack of unified goal and command. Their current set-up is the kind courting internal disagreements. Devolution of functions is, on the most part, productive for a company, especially for an international one like BRL Hardy. However, what complicates their situation is the companys underlying history. Since BRL Hardy is a merged company, it is but expected that there would arise a sort of factionalism immediately after the merger. This is a very probable scenario, and, in my opinion, top executives of both the merged companies were ill-prepared in handling this situation. Factionalism that arose right after the merger was not successfully contained, thus, the lack of unity in command that stretches up to the present. It is mentioned in the case that some company supervisors, for instance Christopher Carson, Managing Director for Europe, would at times incur the disapproval of the Managing Director, Steve Millar, for differences in priorities. Millar himself said that  confrontation can be healthy as long as it is constructive (as cited in p. 672) but it is in my opinion that disagreement is bad for the company if it continually happens as in this case at hand. This is also evident in the companys disagreement on the issue of  Kellys Revenge and Banrock Station labels. The case cited that Paul Browne, the appointed Operations Manager by Carson, promoted Kellys Revenge, Carsons brainchild, while the Australian headquarters wanted Banrock Station. This particular situation is clearly indicative that the devolution of corporate functions have gone way out of hand and the central office is slowly losing control of its branches. It also speaks greatly of the companys missing focus and goals. Following devolution, the decision to pursue market growth, recognition and profitability was handed over to the branch managers and I must concede, it is rightly so. However, the problem that arises is the fact that overall company goals are often times set aside in pursuit of the branchs specific goal. It is true that those on nearest the market know its characteristics and trends but it still remains that decision and command should come from above, or at least from one final and irrefutable decision-maker. This is what the company is missing   a strong central decision base.
2. What recommendation would you make And why
    Given the aforementioned analysis, it is highly recommendable that the companys top executive re-analyzes their decision to decentralize. The company must set the limits on the decisions that could be made by managers. However, it should likewise provide greater implementing strength on those decisions made from above. While it remains that devolution of powers, functions and responsibility is the best way of administering a large international company, there must exist a ready set of guidelines when it comes to the decision-making. This is in pursuit of greater company cohesion, unity in goals and better administration. It is also necessary to keep an open line of communication. Better communication channels all the way up to the top executives and vice versa would be beneficial to the company as a whole. This would likewise assist the company in achieving a unified stance which the company still havent attained as proved by the constant bickering and disagreements running along factional lines   boundaries that understandably arose from the fact that the company is a merged company but should nonetheless be eliminated. All in all, it is in my opinion that once the company was able to establish a unified goal and command, much of the scenarios that currently infest it would be resolved and the chances of it happening again would be reduced.

    Insurance is a tool in compensating ones loss over an insurable interest for health, life, limb, piece of property like a car or a house.

    In this case, The Higgenbottom Family took great pains of precautions in planning and securing ahead their future vis-a-vis their present availability of resources. Hence, in choosing an Insurance Company or an Insurer for their house, they never considered the cheapest but they took consideration of the promise as a whole. As a result, of the fire or accident--they were properly and justly paid according to the terms and the conditions of the insurance contract.

    Nevertheless, it was sane and right to think and plan ahead of the loss of the father of the family the bread winner over which Sarah and their daughter solely is dependent upon. In which case, they were also and properly compensated lessening the burden of the loss of their bread winner.

    The situation in this case pictured the familys capacity to prepare or plan ahead of contingencies. And this is the rationale of the term  Insurance  or Risk Management. Meaning to compensate for the equal and given loss according to the value of the contribution as well as the insurable interest protected in the program.

    In the case at bar both insurance companies over Gregs life and the familys house were doing their job a great deal for it economically appeased the situation over the loss of an interest duly and properly protected and secured by the transaction of Insurance Companies.

Asianic Brewery, a company based in Hong Kong, produces various malt beverages such as beer, iced tea, bottled water, hard liquor, and carbonated soft drinks. Its products are sold on a very limited scale and it owns about 15 of the alcohol market. Because of this, the company seldom buys and instead opts to lease major equipments. One of the major equipments that it leases is the bottle washer. A bottle washer keeps bottles clean and free from contamination prior to bottling beer and other beverages.

A lease is basically a contract between the lessor or the owner of the asset and the lessee, the party seeking use of the asset. Through the lease, the lessor grants the lessee the right to use the asset. In exchange, the lessee makes periodic lease payments to the lessor. A lease, then, is a form of financing to the lessee provided directly from the lessor in order to enable the lessee to purchase the use of the leased asset.
In Asianics balance sheet, PFRS suggests that the lease appears only as a disclosure but should include the total of future minimum lease payments under non-cancellable operating leases for specific periods, i.e. not later than one year, later than one year but not later than five years, and later than five years. Asianic should also disclose the total of future minimum sublease payments expected to be received under non-cancellable subleases at balance sheet date, lease and sublease payments recognized as an expense in the period, with separate amounts for minimum lease payments, contingent rents, and sublease payments.

A general description of the lessees significant leasing arrangements should also be disclosed. This should include the basis on which contingent rent payable is determined, the existence and terms of renewal or purchase options

Before moving toward the Capital structure analysis of a company we should first understand the concept of Capital Structure
Debt financing
If you are borrowing money for your business then it is debt financing. This can be done for short term loans as well as for long term loans. These loans are to be remunerated according to the rules and policies of the lender company related to interest. And the whole amount including the total loan and the interest earned over it are to be paid back within limited time to the lender company (Berglov, 1994).
In debt financing you have full control over the business. There are no investors or partners to whom you are answerable if you make any decision. You can simply say that you own all the profits you earn. By using debt financing system you are actually reducing your tax every year. It means that through this you are actually shielding your income or profits from taxes and lowering your liabilities every year. The interest you repay on your loan becomes tax-deductible.The most important benefit of debt financing is that the lenders who give you loans, do not become partners of your business means you do not share your profits with them. You just have to repay your loans in a timely manner (Berglov, 1994).
Disadvantages of taking loan for a business may be huge. At the start stages you just need frequent inflow of money in your business to run it effectively. While on other hand if you started with debt then you will be under pressure of repayment of liabilities in the same time. And if you will not make your credit payments on time to family and friends, you will lose those relations. If you are taking money from banks then they may require you to undertake your private assets before giving you a loan. If your business do not works, you will lose your private assets. If a business is using debt financing, it is sure that the risk of bankruptcy is always there. The more debt financing is used, the greater the risk of bankruptcy you have.
Equity financing
If there is division of ownership of the business relying on the investments of the owners then it is equity financing. Here if an individual want to be a partnership owner of a business then he has to invest some money in that business, that money will not be considered as a loan or debt. This type of financing for a business is called as equity financing. If you are using equity financing method then you do not have to pay intense loans, either you can use money of your company associates or investors. It means you can cope up with a successful business without taking the loads of weighty loans as your liabilities. Another thing to be considered of equity financing is that if your company is at chance or it is declining at the earlier stages. And you think it is going to end up in next few months. For this you prepare a report and send it to your partners or investors then its confirm to them that if business fails they will not get their money back. In this way you do not have fear to repay your debts (Berglov, 1994).
 It is likely that your investors will provide you valued suggestions and offer loyal business support that you may not have. This will be a very significant contribution from their side, particularly in the premature days of a new business. Be sure that if you use equity financing it means you have to share your profits with the partners or investors. And if your business do not earned a profit during the earlier years of the business, then the shareholder or investor dont expect to be paid and sometimes in extreme conditions you have to give up controls over the business. Even your investors own a small part of your business they expect you to act in their best interests. Being the stakeholders of your business you have to satisfy your investors, while doing this a lot of paper work has to be done. Both debt and equity financing techniques have there own advantages and disadvantages. It is very difficult to decide which is good or bad, it simply depends on situation. The type of business you plan to start will decide which technique better suits you.
Company selection
For the purpose of this paper I have selected the company which is Microsoft Corporation. It is a very well known company among the market and its competitors. The Microsoft Corporation was founded by two associates Bill Gates and Paul Allen with the dream of creating cutting border software. Opening with programming dares in the 1970s, Bill Gates and his partner Paul Allen started a business with a vision to generate software on the most recent tools they could find. They would commence with writing essential commands for nothing more than minute circuit boards. In the present day, the dispute of developing the worlds most complicated software widen much further than the dorm area of a young Harvard student. Development and achievement are two words that a corporation known as Microsoft has come to be very known with.
By being down to business to software technology, Microsoft is able to drive the market while it observes other software manufacturers go after. In actual fact one of the difficulties they are facing is that they have is outdating themselves and creating a product that will function with up to date hardware technologies. Their product life cycle frequently revolves around themselves. Bill Gates is the director in the center of growth and trend in relation to which products should take, and Total Quality Management i.e TQM (customer satisfaction and constant process improvement) plays a big part in a vigorous product. Behind all this here we will analyze the capital structure of the firm very critically and then its merits and drawbacks are going to be listed to give an overview of its capital structure policy (Fireworkszone, 2009).
Balance sheet
Microsoft Corporation
Annual Data 
All numbers in thousands


PERIOD ENDING
30-Jun-08
30-Jun-07
30-Jun-06



Assets

Current Assets


Cash And Cash Equivalents
10,339,000
6,111,000
6,714,000


Short Term Investments
13,323,000
17,300,000
27,447,000


Net Receivables
15,606,000
13,237,000
11,256,000


Inventory
985,000
1,127,000
1,478,000


Other Current Assets
2,989,000
2,393,000
2,115,000



Total Current Assets
43,242,000
40,168,000
49,010,000

Long Term Investments
6,588,000
10,117,000
9,232,000

Property Plant and Equipment
6,242,000
4,350,000
3,044,000

Goodwill
12,108,000
4,760,000
3,866,000

Intangible Assets
1,973,000
878,000
539,000

Accumulated Amortization
-
-
-

Other Assets
1,691,000
1,509,000
1,295,000

Deferred Long Term Asset Charges
949,000
1,389,000
2,611,000



Total Assets
72,793,000
63,171,000
69,597,000



Liabilities

Current Liabilities


Accounts Payable
12,830,000
6,612,000
9,521,000


ShortCurrent Long Term Debt
-
2,741,000
-


Other Current Liabilities
17,056,000
14,401,000
12,921,000



Total Current Liabilities
29,886,000
23,754,000
22,442,000

Long Term Debt
-
-
-

Other Liabilities
6,621,000
8,320,000
7,051,000

Deferred Long Term Liability Charges
-
-
-

Minority Interest
-
-
-

Negative Goodwill
-
-
-



Total Liabilities
36,507,000
32,074,000
29,493,000



Stockholders Equity

Misc Stocks Options Warrants
-
-
-

Redeemable Preferred Stock
-
-
-

Preferred Stock
-
-
-

Common Stock
62,849,000
60,557,000
59,005,000

Retained Earnings
(26,563,000)
(29,460,000)
(18,901,000)

Treasury Stock
-
-
-

Capital Surplus
-
-
-

Other Stockholder Equity
-
-
-



Total Stockholder Equity
36,286,000
31,097,000
40,104,000



Net Tangible Assets
22,205,000
25,459,000
35,699,000



(MsnMoney, 2009)
Analysis of firms capital structure
The above information from the balance sheet data shows that the company has only used the equity financing for raising the capital. We can see that there is no balance in the longterm debt coloumn and hence its understood that the company has not used the debt financing for raising the capital. And the capital structure of the firm will be 100 equity. Now we will see that what are going to be the merits and drawbacks of the equity financing for the company. It can be easily observed that the equity amount of the company was randomly varied among last three years. In the 2006 it was 40,104,000 while in 2007 it was 31,097,000 and lastly in 2008 it was 36,286,000. And now in 2009 company may be thinking of changing it further (Yahoofinance, 2009). 
Merits and drawbacks of the capital structure of the firm
Following are the merits of the equity financing for the Microsoft Corporation.
If you are using equity financing technique then you do not have to pay heavy loans, either you can use money of your business partners or investors. Means you can run a successful business without taking the burdens of heavy loans as your liabilities.
Another advantage of equity financing is that if your business is at stake or it is declining at the earlier stages. And you think it is going to end up in next few months. For this you prepare a report and send it to your partners or investors then its confirm to them that if business fails they will not get their money back. In this way you do not have fear to repay your debts.
 It is likely that your investors will provide you valued suggestions and offer loyal business support that you may not have. This will be a very significant contribution from their side, particularly in the premature days of a new business (Blackman, 2009).
Following are the major drawbacks of the equity financing
Be sure that if you use equity financing it means you have to share your profits with the partners or investors. And if your business do not earned a profit during the earlier years of the business, then the shareholder or investor dont expect to be paid and sometimes in extreme conditions you have to give up controls over the business (Yahoofinance,2009).
Even your investors own a small part of your business they expect you to act in their best interests. Being the stakeholders of your business you have to satisfy your investors, while doing this a lot of paper work has to be done. And if you open yourself for a broad public trading, the paperwork may engulf you. You will have to consult the Securities and Exchange Commission before making any decisions.
The CEO of Microsoft Corporation has run the company with a capital structure that consists mainly of cash and virtually no debt. He has been very triumphant with this capital structure providing steady, constant growth and productivity. The data analyzed shows pretty impressive numbers of profits and return on equity for the company. Companys axiom was to enlarge shareholder value, which is what the company has done ever since this company has established. According to the previous studies it has been observed that one technique to raise shareholder value was to modify the capital structure by increasing debt and reducing equity(Berglov, 1994).
This change was not going to be easy for Microsoft because its upper mnagement does not like incurring debt and also they ran the company successfully with almost no debt so he does not see a basis to change. Hence the company should review all the merits and demerits of capital structure. These were all the drawbacks and advantages of company capital structure policy and the decisions behind it. Basically now the company should either focus the drawbacks or try to leave them behind or the company should try to use the positive points more. Although the Microsoft Corporation is gaining success from its start but still the company should consider its capital structure policy and should revive it according to the needs of the time, for its overall benefits and enhancement of profits.