The paper "Finance of Australian Securities Exchange and the Banana Republic" is a wonderful example of an assignment on finance and accounting. Ashley Services Group Limited is in the commercial services and supplies sector while Duketon Mining Limited and Metro Performance Glass Limited are in the materials sector of the Global Industry Classification Standard.
In the ASX All Ords, Ashley Service Group Limited has its price at $1.85 with a bid and offer price of $1.84 and $1.855 respectively. The percentage return is at -0.26%. Duketon Mining Limited’s performance is at a price of $0.24 with a bid and offers a price of $0.24 and $0.245 respectively. The percentage return is at 2.13%. Metro Performance Glass Limited has a closing price of $1.60 with a bid and offers a price of $1.12 and $1.7 respectively. The percentage return is at 6.25%.
Companies ought to set an offer price that will influence the first day’s opening price into a favorable first day’s closing price. A favorable closing price will dictate the operation of the shares in the next business day. In Ashley Service Group, the offer price was set lower than both the first day’s opening and closing prices. In Duketon Mining Limited, the offer price was higher than the first day’s opening price but lower than the first day’s closing price leading to a negative percentage return in both cases. Metro Performance Glass Limited set an offer price similar to the first day’s opening price and higher than the first day’s closing price. The result was a positive percentage return in both cases.
2. Analysis of the three companies’ balance sheet (in millions of AUD).
Using the debt ratio, all the companies have a ratio of less than 0.5. It means that they are stable. Duketon Mining Limited has the lowest overall debt.
The debt to equity ratio for both Ashley Service Group limited and Metro Performance Glass Limited is greater than 0.5. It means that there are half as many liabilities as equity. Metro Performance Glass Limited has a higher debt to equity ratio than Ashley Service Group Limited and Duketon Mining Limited. The three companies have different capital structures that entail different levels of debt to equity ratios.
Higher equity ratios imply that a company is less risky and more sustainable (Bragg, Steven p23).
The pecking order of the capital structure for the three companies would be;
1. Duketon Mining Limited
2. Ashley Service Group Limited
3. Metro Performance Glass Limited
The Banana Republic
The optimal capital structure refers to the debt to equity (D/E) ratio that maximizes a firm’s value (Deangelo, Harry, and Richard p14).
The optimal capital structure for the Banana Republic is $7.5 million in debt and $12 million equity. The value of the firm at the optimal capital structure will be calculated as;