Articles

Determining the Optimal Capital Structure of Coal Company

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This study examines stock price decline and coal price uncertainty as business issues. PT Delta Dunia Makmur Tbk has high debtto-equity ratio. High dividend-equity companies pay more interest. Interest costs reduce a company’s net profits and cash available for investment or shareholder payout. This may affect shareholder income and corporate growth. To raise net income and firm value for investors and rebuild trust, PT Delta Dunia Makmur Tbk management must estimate a favorable cost of debt and equity. This study employed secondary data. This study uses 2018-2019 DOID financial statements as secondary data. The lowest WACC helps PT. Delta Dunia Makmur Tbk choose the best capital structure. Calculate capital structure debt and equity costs using the debt-toequity ratio. The Damodaran synthetic rating table calculates loan cost using the interest coverage ratio and PT. Dunia Makmur Tbk default spread value. The actual debt ratio is 83.69%, while the optimal debt ratio is 34%. According to Damodaran, the corporation is overlevered since actual optimal (83.69% > 34%). Delta Dunia is currently in the “GREY ZONE” of the Altman Z-score calculation, hence it is not at risk of bankruptcy. Therefore, the corporation can finance new projects with retained earnings or equity, pay off debt with retained earnings, reduce dividends, issue new shares, or pay off debt. From PT Delta Dunia Makmur Tbk’s financial statements, the debt ratio is 83.69%, the equity ratio is 16.69% with a cost of equity of 19.75%, the WACC generated is 11.02%, and the firm’s value is $965,639,737.72. After simulation, the optimal capital structure for PT Delta Dunia Makmur Tbk was 34% debt, 66% equity, 10.39% cost of equity, and $1,166,687,666.77. According to the Altman Z-score calculation, PT Delta Dunia Makmur Tbk is in the GREY ZONE and not at risk of bankruptcy, so the best way to change the debt ratio is gradually so the company can fund good projects or pay debt with new equity and retained earnings.

Determine the Optimal Capital Structure of PT Indofood CBP Makmur Tbk (PT. ICBP)

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The food and beverage industry is a very large industry both nationally and globally. In Indonesia, the government’s investment realization in the food and beverage industry reached IDR 19.17 trillion. One of the giant food and beverage companies in Indonesia, namely PT ICBP, is one of the largest contributors to Indonesia’s GDP in the food and beverage sector. But the problem occurred in 2020 when the COVID-19 pandemic hit. Apart from the pandemic, in 2022 there was a war between Russia and Ukraine which disrupted the global supply chain. The company’s decision to acquire PCL needs to be questioned because looking at the company’s financial condition, the capital structure of the firm is not in an optimal position. Therefore, this research was conducted with the aim of obtaining optimal capital structure and providing recommendations for strategic steps for PT ICBP. The results obtained are that in 2022 the debt level of the company is not on the optimal capital structure. Therefore, the authors carry out a scenario analysis of the company’s capital structure based on the base scenario where the future financial position will develop, such as the author’s estimation, the best scenario and the worst scenario. The optimal capital structure is obtained if the debt is at the level of 85% for the base scenario, 45% for the best scenario, and 40% for the worst case. With this capital structure, company achieve its maximum firm value. Companies must reduce debt levels according to the framework that Damodaran recommends, namely investing using new equity or retained earnings.

Post COVID-19 Optimal Capital Structure for Indonesian Retail Company

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The COVID-19 pandemic that occurs in the world has a negative impact on the economy and makes various businesses make adjustments to their business. This also has an impact on PT MDS. By the end of 2021, economic conditions have improved and businesses are preparing to re-develop their businesses. PT MDS, which had previously closed several of its outlets, is preparing to reopen 12-15 outlets per year. The opening of new outlets carried out by the company is aimed at developing the business. However, the company also wants its implementation to continue to optimize the company’s efficiency. The way that can be taken in achieving optimization of company efficiency is through an optimal capital structure. To obtain the optimal value of the capital structure, this research conducts a scenario formation based on the company’s historical parameters. From the formation of the scenario, 3 scenarios can be formed, namely best-scenario, base-scenario and worst-scenario. The result of the analysis of the company’s optimal capital structure at base scenario is 85%, higher than the actual at 73.4%. Meanwhile, in best and worst scenario, the company’s optimal capital structure is at a lower and higher than actual condition. To achieve the optimal capital structure, companies need to increase their debt ratio. Using the Aswath Damodaran framework, it was found that the step the company needs to take is to carry out the project of opening 12-15 stores using new long-term debts.

Determining the Optimal Capital Structure of PT Bumi Resource Tbk

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Demand for coal increased because of the energy crises that occurred in Europe and China. Due to this growth in demand, coal prices have gone up globally as well. This can be an opportunity for coal companies in Indonesia as one of the countries with the largest coal reserves in the world. PT Bumi Resource Tbk, one of the businesses with Indonesia’s largest coal deposits. Additionally, most of the coal supplied by PT Bumi Resource Tbk is consumed domestically, and most of it for China. So, it is necessary to increase production to meet these demands.

One way to increase production is by optimizing the company’s capital structure. The proportion of debt and equity which is capital structure will be the focus of the company in the future. PT Bumi Resource Tbk was repeatedly unable to repay its loans. Based on calculations through the Damodaran theory, the optimal capital structure for companies in 2021 with 30 percent debt ratio. This would maximize the company’s value of $1,709,478,366 with a weight average cost of capital of 7.86 percent. Future projections are made using three scenarios: the best scenario, the base scenario, and the worst scenario. The best scenario is the best of these three scenarios with delivers the highest firm value, $ 4,605,803,420 with the lowest weight average of capital costs, 9,06 percent. The proportion of the debt ratio needed to maximize the value of the company in its best condition is 10 percent.

The results of calculating the optimal capital structure today or in the future show that companies need to reduce the debt ratio if they want to maximize their firm value. In addition, the company is also facing threat of bankruptcy because the Alman Z-score is

-0.13. There are several ways based on the Damodaran framework to reduce debt ratio. First, a company can do a debt for equity swap by converting its debt into equity or by doing a private placement. Second, companies can negotiate with lenders regarding the maturity of their debts or decrease of interest by making an agreement. Third, companies can sell their assets to pay off their debts.