When making the optimal capital structure decision according to the theory of capital structure, the comparative company value method should comprehensively consider the influence of capital cost and financial risk on enterprise value, and choose the capital structure with the largest company value by comparing the company values under different capital structures. Because the comparative company value method comprehensively considers the influence of capital cost and financial risk on company value, it is in line with the basic goal of modern company financial management to maximize company value as the goal of determining the best capital structure.
The basic principle of the comparative company value method includes the following steps:
1. Calculate the company value. According to the hypothesis of capital structure theory, the company value is actually the present value of its future cash flow. Therefore, the value of bonds and stocks should be discounted according to their future cash flows.
2. Calculate the company's capital cost rate. According to the above assumptions, in the case that the company's total capital only includes long-term bonds and common stocks, the company's comprehensive capital cost is the weighted average of long-term bond capital cost and common stock capital cost.
3. Calculation and judgment of the company's optimal capital structure. Calculate the company value and comprehensive capital cost under different capital structures respectively, and choose the capital structure with the largest company value and the lowest comprehensive capital cost as the optimal capital structure of the enterprise.
Analytical process
Theoretical assumption: the company's debts are cheap long-term debts, which pay interest in installments and repay the principal at maturity, regardless of financing costs.
(1) If the company's debt is a par debt and interest is paid in installments, the book value of the long-term debt is equal to the face value.
(2) As liabilities are less affected by external market fluctuations, generally speaking, the market value of liabilities is equal to their book value.
(3) The key to determine the total market value of the company is to determine the total market value of shareholders' equity, that is, the value of the company's shares.