The company I chose is Disney and Netflix. Could you please compare these two companies?
We study capital structure through a mostly theoretical lens. When Modigliani and Miller (MM) first encountered the problem there was no theory. Now there is a lot of theory including the MM work which leads to the Tradeoff Model which is where we leave it. There are other useful theories, but they do not always agree with each other or with observed reality. It is a tough problem! Professor Stewart Myers is a leading researcher in the field and has contributed significantly to the puzzle. He expresses our collective progress and nevertheless incomplete understanding in this readable plenary address from 2001: Most research on capital structure has focused on public, nonfinancial corpo- rations with access to U.S. or international capital markets. This is the right place to start. These companies have the broadest menu of financing choices and can adjust their capital structures at relatively low cost. Yet even 40 years after the Modigliani and Miller research, our understanding of these firms financing choices is limited. We know much more about financing tacticsfor example the tax-efficient design or timing of a specific security issuethan about financing strategy, for example the firm's choice of a target overall debt level. Research on financing tactics confirms the importance of taxes, information differences and agency costs. Whether these factors have first-order effects on the overall levels of debt vs. equity financing is still an open question. Debt ratios of established, public U.S. corporations vary within apparently homogenous indus- tries. There is also variation over time, even when taxation, information differences and agency problems are apparently constant. The purpose of this exercise is to take a small look at real-life capital structure decisions made by managers: What they do and what they say about what they do. Your work will be under 2 pages including cut and paste exhibits. Pick two public, nonfinancial peer businesses: something like Coke vs Pepsi or Chevy vs Ford. Compare and contrast their capital structure choices. At least one of them should actually have debt. Most do. 2. Check out an investor presentation or Management Discussion and Analysis (MD&A). How does management measure and talk about their capital structure or debt choices? They may or may not talk about D/E or D/(D+E). Other options are interest coverage, Debt/EBITDA, Debt/FFO, credit rating, and others. Do the two similar firms look at similar metrics? Where are they now versus their targets? How are they planning to hit targets? We study capital structure through a mostly theoretical lens. When Modigliani and Miller (MM) first encountered the problem there was no theory. Now there is a lot of theory including the MM work which leads to the Tradeoff Model which is where we leave it. There are other useful theories, but they do not always agree with each other or with observed reality. It is a tough problem! Professor Stewart Myers is a leading researcher in the field and has contributed significantly to the puzzle. He expresses our collective progress and nevertheless incomplete understanding in this readable plenary address from 2001: Most research on capital structure has focused on public, nonfinancial corpo- rations with access to U.S. or international capital markets. This is the right place to start. These companies have the broadest menu of financing choices and can adjust their capital structures at relatively low cost. Yet even 40 years after the Modigliani and Miller research, our understanding of these firms financing choices is limited. We know much more about financing tacticsfor example the tax-efficient design or timing of a specific security issuethan about financing strategy, for example the firm's choice of a target overall debt level. Research on financing tactics confirms the importance of taxes, information differences and agency costs. Whether these factors have first-order effects on the overall levels of debt vs. equity financing is still an open question. Debt ratios of established, public U.S. corporations vary within apparently homogenous indus- tries. There is also variation over time, even when taxation, information differences and agency problems are apparently constant. The purpose of this exercise is to take a small look at real-life capital structure decisions made by managers: What they do and what they say about what they do. Your work will be under 2 pages including cut and paste exhibits. Pick two public, nonfinancial peer businesses: something like Coke vs Pepsi or Chevy vs Ford. Compare and contrast their capital structure choices. At least one of them should actually have debt. Most do. 2. Check out an investor presentation or Management Discussion and Analysis (MD&A). How does management measure and talk about their capital structure or debt choices? They may or may not talk about D/E or D/(D+E). Other options are interest coverage, Debt/EBITDA, Debt/FFO, credit rating, and others. Do the two similar firms look at similar metrics? Where are they now versus their targets? How are they planning to hit targets
