Applying Z-score model in estimating optimal capital structure for Tra Phi Joint stock company
Abstract
Using debt has become most considerable problem nowadays in Vietnam especially for manufacturing company, which needs high capital to run business. In Vietnamese‟s economy condition, with the high risk of the bad debt and high inflation rate, the company must analyze many factors before deciding whether need to borrowing debt or not. The purpose of this thesis is to exanimate the effect of debt ratio to the overall financial of the company. This thesis used, Tra Phi Joint stock company (TRAPHICO), as a case study to analyze the debt‟s impact to the current financial status
of company and using the Z-score model to estimate the best debt ratio that maximize the
company‟ value. The quantitative method was applied and using the financial statement
of company from 2008 to 2012. Break-even point analysis is used to establish the condition to construct the Z-score model. After constructing the Z-score model, using the quadric equation of the financial distress cost to quantify the value of financial distress cost. Combine both financial distress cost and M&M theory to find out the minimum WACC, which make the highest company‟s value. After find out the optimal capital structure of TRAPHICO, comparing with the current debt ratio, the company‟s capital structure has nearly come to the optimal point. From the result of the study, the company still can get more tax shield advantage by borrowing more debt because the debt level still be in safety zone. However, in reality company is trying to minimize the debt ratio
as much possible due to the current economic status.
In conclusion, the differences between perfect world and the real world make the capital structure theories not easily to apply in practice. Using Z-score model is
a new way approach by using financial data and quadric calculation. However, the limitation of this method we must assume many consist factor which is in real world it always being changed. Some recommendation and conclusion from the thesis can help
the financial manager of TRAPHICO has a better insight financial situation of company.