FIN4812 INTERNATIONAL FINANCE
Dr. Radha Sirianukul
Date Sumbitted: March 6th, 2012
Thai Wacoal Company Limited and Wacoal Holdings Corporation
Thai Wacoal Public Company Limited is the manufacturer of finished garment products, consisting of ladies’ lingerie, ladies’ outerwear, and children wear products, with its main product category focus on ladies’ lingerie. It is a joint venture company between Thailand’s Saha Group and Wacoal Corp. of Japan, established in October 1, 1970.
The parent company, Wacoal Holdings Corp is a multinational corporation operating in major areas of the world such as Europe, America, and Asia. Wacoal Corp. of Japan is located in Kyoto which makes up the center of R&D and business development and caters to the Asia area, which also includes Thailand. There are 5 subsidiaries in Thailand, located in Bangklo, Chonburi, Lampoon, and Prachinburi, with the production plant in Bangklo as the head office.
In October 1, 1970, Thai Wacoal Public Company Limited registered with 4 million Baht. In 1983, it was listed as one of the company on the Stock Exchange of Thailand. It has continuously registered its capital over the years, and has now registered capital of 120 million Baht. Capital Budgeting Analysis
Wacoal Holding Groups (MNC) capital budgeting differs with the purely domestic companies because: 1.
Size of the firm
The registered capital is 120,000,000 Baht with the sales of 3689 million Baht in 2011. Wacoal engages in export about 28% of its total sales. This company covers the women lingerie in consumer product/fashion industry. 2.
Access to International Capital Market
Since Wacoal Holding Groups is an international company it would get easier access to capital as per compared to the Thai Wacoal Public Company because of its reputation and image worldwide. 3.
Thai Wacoal Public Company has with itself a strong parent company which is the Wacoal International with extensive knowledge on international market since they have subsidiaries in various countries. However, the products offered by the firm is the same throughout the world, it is focused on the children’s wear, ladies outwear and ladies’ lingerie. The lack of diversification in products offer can also effect the capital budgeting. 4.
Exposure to Exchange Rate
Since Wacoal Holding Corp. operates in a lot of countries like Asia, America, Europe etc., the exchange rate risk is also high. 5.
Exposure to Country Risk
For Thai Wacoal Public Company Limited, there is a larger risk compared to the domestic companies because of country risk. Since government regulations, tax, laws in other countries can affect Thai Wacoal Public Company Limited more directly than the domestic.
General Financial Overview
A firm’s capital structure consists of both debt financing and common equity financing. If we take a look at Thai Wacoal’s general financial overview, from the year 2007 to year 2010, its total liabilities has been around 500 to 600 million baht, but in 2011, it has rose up to about 1,000 million baht, which will be further discussed in the later topic. As for its equity, it has been quite stable for the past five years, ranging from around 4,000 to 5,000 million baht.
Capital Structure: Debt Financing vs. Common Equity Financing A firm’s capital structure consists of debt financing and common equity financing. Thai Wacoal’s debt to equity ratio is very low, so we can see that it prefers to use equity financing over debt financing. There are several reasons to a firm’s financing decision by looking at the advantages and disadvantages of each method.
When a firm chooses to use debt financing, it would have to pay the cost of debt, which is the interest expenses. Advantage of using debt to finance is that the interest payments can be deducted from the...
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