Analysis of Capital Structure of Ihg
Title Analysis of the Capital Structure of InterContinental Hotel Group (IHG) Company
Student Numbers; 307473 307540 307576 308254
A dissertation in report form submitted in partial fulfillment of the requirements for Financial Management II of the Higher Diploma in Events, Hotel and Tourism Management
IMI
International Hotel Management Institute, Switzerland
October 2010 Abstract: This report is illustrated about the capital structure of Inter Continental Hotel Group Company. The IHG Company is a large hotel company with a spectacular number of rooms plus owns a portfolio of well recognized and respected famous brands in over the world. During process of the company, they have used several methods of finance to clarify about their financial statement. In this report, the authors explained single statement of finance of this Company which this company has applied. By researching information and literature review, survey questions and analysis, the operation of company is demonstrated and confirmed. Besides that, the author would like to give their recommendation as advices.
Contents
TABLE OF CONTENTS 3
CHAPTER 1: INTRODUCTION Aim and Objectives 5 Background 5 CHAPTER 2: LITERATURE REVIEW Introduction 6 2.1 Debt Equity Ratio 6 2.2 Return on Equity (ROE) 7 2.3 Financial Leverage 7 2.4 Operating Leverage 8 2.5 Cash Flow 8 2.6 Optimal Capital Structure 9 2.7 The Modigliani & Miller Theorems (MM Theorems) 9 2.8 Pecking Order Theory 10 2.9 Trade-off Theory 10 CHAPTER 3: METHODOLOGY Introduction 11 Secondary Research 11 Primary Research 11 CHAPTER 4: ANANLYSIS Introduction 12 Primary Research 12 4.1 Total Liabilities 13 4.2 Debt-equity ratio 14 4.3 Return on Equity 15 4.4 Pecking Order Theory 16 4.5 Financial Crisis 17 4.6 Economic Risk 18 CHAPTER 5: CONCLUSION Conclusion 19 Bibliography / references 20 Appendices
Student Numbers; 307473 307540 307576 308254
A dissertation in report form submitted in partial fulfillment of the requirements for Financial Management II of the Higher Diploma in Events, Hotel and Tourism Management
IMI
International Hotel Management Institute, Switzerland
October 2010 Abstract: This report is illustrated about the capital structure of Inter Continental Hotel Group Company. The IHG Company is a large hotel company with a spectacular number of rooms plus owns a portfolio of well recognized and respected famous brands in over the world. During process of the company, they have used several methods of finance to clarify about their financial statement. In this report, the authors explained single statement of finance of this Company which this company has applied. By researching information and literature review, survey questions and analysis, the operation of company is demonstrated and confirmed. Besides that, the author would like to give their recommendation as advices.
Contents
TABLE OF CONTENTS 3
CHAPTER 1: INTRODUCTION Aim and Objectives 5 Background 5 CHAPTER 2: LITERATURE REVIEW Introduction 6 2.1 Debt Equity Ratio 6 2.2 Return on Equity (ROE) 7 2.3 Financial Leverage 7 2.4 Operating Leverage 8 2.5 Cash Flow 8 2.6 Optimal Capital Structure 9 2.7 The Modigliani & Miller Theorems (MM Theorems) 9 2.8 Pecking Order Theory 10 2.9 Trade-off Theory 10 CHAPTER 3: METHODOLOGY Introduction 11 Secondary Research 11 Primary Research 11 CHAPTER 4: ANANLYSIS Introduction 12 Primary Research 12 4.1 Total Liabilities 13 4.2 Debt-equity ratio 14 4.3 Return on Equity 15 4.4 Pecking Order Theory 16 4.5 Financial Crisis 17 4.6 Economic Risk 18 CHAPTER 5: CONCLUSION Conclusion 19 Bibliography / references 20 Appendices
Bibliography: Background Intercontinental Hotels Group, IHG, is the world’s largest hotel operator by number of rooms (646,679 rooms) and they have 4,438 hotels in over 100 countries worldwide (Smith Travel Research as at 1 January 2010) 2.1 Debt Equity Ratio The debt to equity ratio – also called by total liabilities to total equity ratio – is demonstration of relationship between the amount of debt and equity (Coltman, 1992) 2.3 Financial Leverage Financial leverage is the use of debt to finance a company or group’s asset along with equity (Andrew et al, 2007) 2.5 Cash Flow Cash flow means the actual cash receipts and disbursements in a business (Andrew et al, 2007) 2.6 Optimal Capital Structure Optimal capital structure means capital structure that makes maximized value of a company or a group (Pike and Neale, 1999) Although these assumptions made by MM are unrealistic, they have indicated and provided us clues on what is required for capital structure to be relevant and what affects a firm’s value. (Brigham et al, 2004) 2.8 Pecking Order Theory