Divine Chocolate Essay Online For Free - Free Essay Example

Sample details Pages: 10 Words: 2997 Downloads: 6 Date added: 2017/06/26 Category Economics Essay Type Research paper Level High school Did you like this example? I. Introduction At the request of the Board of Directors, this presentation will examine the â€Å"social enterprise† organisation from several perspectives. First, the social enterprise form of organisation will be defined, with a focus on the social enterprise sector in the UK, and other data specific to social enterprise organisations operating in the UK. Don’t waste time! Our writers will create an original "Divine Chocolate Essay Online For Free" essay for you Create order A description of the social enterprises currently operating in the UK will be presented. The presentation will then discuss the concept of â€Å"social firms† and how they fit in to the business environment of social enterprises previously examined. This will be followed by a discussion of several aspects of our social enterprise, the Day Chocolate Company (Divine Chocolate), beginning with its origins and mission, and concluding with recommendations on how our social enterprise can formulate an effective long-term strategy for success. II. What is Social Enterprise? A social enterprise can be defined as an organisation that is driven by motives that are not exclusive to earning a profit from its operations (Pepin, 2010). As of 2010 there were at least 62,000 organisations that could be defined, to some extent as social enterprises operating within the UK (Pepin, 2010). The aggregate turnover generated by these social enterprises exceeded  £32 billion per year (Pepin, 2010). The additional, non-profit measures that social enterprises are measured by include various social, cultural, environmental, and other measures (Fichtl, 2007). For social enterprises, these additional non-profit measures can be viewed as being of greater significance to the organisation than the profit motive, given that social enterprises are more likely to direct surpluses generated via operations to meet certain social objectives, as compared to utilising such surpluses to increase shareholder wealth through activities such as dividend payments (Berardi, 2013). Social enterprises operate in several sectors of the economy, but are most numerous in the training, housing, education, and retail/wholesale sectors (Berardi, 2013). The main source of income for social enterprises is the general public, which accounts for 37% of income generated by social enterprises in the UK (Berardi, 2013). The public and private sectors contribute 18% and 13% respectively, and grants and donations contribute 14% to the income generated by social enterprises in the UK (Berardi, 2013). III. What do Social Enterprises do? Social enterprises are established in order to address certain environmental and/or social needs through the operation of their business (Berardi, 2013). The most frequent objective of social enterprises in the UK is to improve a particular community, with a quarter of all social enterprises falling in this category (Berardi, 2013). Another frequently occurring objective of social enterprises, accounting of 24% of social enterprises in the UK, is the goal of addressing social exclusion in society in general, a community in particular, and/or a sector of the economy specifically (Berardi, 2013). Additional goals common in many social enterprises are the goals of improving the health and wellbeing of a community, and helping protect the environment (Berardi, 2013). Social enterprises need not devote all of their resources to address one particular objective (Berardi, 2013). Some social enterprises attempt to achieve several goals, which in addition to those already described ab ove, including goals such as promoting literacy, supporting vulnerable individuals in society, assisting in providing affordable housing, and helping to increase employment (Berardi, 2013). IV. Are any Social Enterprises Successful? There are many successful social enterprises operating in the UK (RBS, 2013). One such successful enterprise is the Green Machine organisation (RBS, 2013). Green Machine reuses paint supplies in an effort to address the estimated 56 million litres of paint wasted each year in the UK (The Green Machine, 2014). The Green Machines labour force consists of 40% of individuals who can be categorised as disabled or disadvantaged, thus demonstrating a social enterprise attempting to address more than one social and/or environmental goal (The Green Machine, 2014). A social firm is a type of social enterprise that attempts to create quality jobs for individuals who are disadvantaged in the labour market (Social Firms UK, n.d.). The criteria required in order for an organisation to be considered a social firm is as follows: 1) â€Å"Social Firms are businesses that combine a market orientation and a social mission† ; 2) â€Å"More than 25% of employees will be disadvantaged pe ople† ; and 3) â€Å"Social Firms are committed to the social and economic integration of disadvantaged people through employment† (Social Firms UK, n.d.). Thus, the Green Machine organisation, in addition to being a social enterprise, can also be considered a social firm, given its commitment to finding employment for disabled and disadvantaged individuals (The Green Machine, 2014). V. What kind of Social Enterprise is Day Chocolate Company (Divine Chocolate)? As discussed above, social enterprises do not necessarily conform to any one particular type. (Berardi, 2013). The Day Chocolate Company is partly owned by the farmers who supply the cocoa used in the production of Day Chocolate Companys chocolate products (Social Enterprise Academy, n.d.). The cocoa farmers are located in Ghana, West Africa, and own 45% of Day Chocolate Companys shares (Social Enterprise Academy, n.d.). The cocoa farmers are organised as a co-operative called Kuapa Kokoo, made up of 45,000 members across 1,000 villages in Ghana, West Africa (Doherty and Tranchell, 2005). The chocolate is purchased from the farmers on a fair trade basis, in order to achieve better trade conditions for the farmers and promote the sustainable farming of cocoa in Ghana, West Africa (Social Enterprise Academy, n.d.). Thus, Day Chocolate Company can be viewed as a social enterprise of the type that attempts to improve a particular community and by creating employment opportunities (Berardi, 2013). Secondary effects of these goals, such as promoting education and literacy are also achieved (Divine Chocolate, n.d.). When establishing a social enterprise in the UK, the organisation must be established as one of the following business structures: limited company; charity; charitable incorporated organisation; co-operative; industrial and provident society; community interest company; sole trader; or business partnership (Gov.UK, 2013). There are benefits and drawbacks to each of the aforementioned business structures, and an organisation will choose which of the business structures is most appropriate in its particular circumstance. VI. Motivations and Expectations of the Day Chocolate Company (Divine Chocolate) In the early part of the 1990s the cocoa production in Ghana was privatised, and the government of Ghana controlled the export of cocoa out of the country (Social Enterprise Academy, n.d.). However, when state support of the cocoa industry in Ghana collapsed the livelihoods of thousands of cocoa farmers in Ghana were put at risk (Social Enterprise Academy, n.d.). It was at this time that the idea for the Day Chocolate Company was created (Social Enterprise Academy, n.d.). The mission of the Day Chocolate Company is to improve the livelihoods of cocoa farmers in West Africa by putting them higher up the value chain (Divine Chocolate, 2012). Day Chocolate Company attempts to achieve this objective by sourcing the cocoa necessary in the production of its chocolate goods from the farmers of Ghana, West Africa according to fair trade standards (Divine Chocolate, 2012). Rather than being motivated by a goal of increasing shareholder wealth, the Day Chocolate Company emphasises a si gnificant return of its profits from the sales of chocolate, in markets where such products are in high demand, in particular the UK and America, back to the cocoa farmers in Ghana, West Africa (Divine Chocolate, 2012). The Day Chocolate Company was encouraged by the success of fair trade marked organisations such as the coffee company Cafedirect (Doherty and Tranchell, 2005). Cafedirect began in 1993, and by 2005 had succeeded in becoming the 6th largest coffee company in the UK (Doherty and Tranchell, 2005). The success of Cafedirect had a direct impact on the livelihoods of coffee farmers in Latin America, Africa, and Asia (Doherty and Tranchell, 2005). VII. The Day Chocolate Company (Divine Chocolate) Organisation The Day Chocolate Company was established in the UK in 1998 as a private company limited by shares (Doherty and Tranchell, 2005; Usa, n.d.). When it was established in 1998, Day Chocolate Companys shares were owned by the fair trade organisation Twin Trading (52%), the cosmetics company The Body Shop (12%), and the Ghana cocoa farmer co-operative Kuapa Kokoo (33%) (Social Enterprise Academy, n.d.). The cocoa farmers share was financed by a  £400,000 loan from the Department for International Trade Development (Social Enterprise Academy, n.d.). In 2006 the Body Shop decided to donate its shares in the Day Chocolate Company to the Kuapa Kokoo co-operative (Divine Chocolate, 2011). In January 2007 Day Chocolate Company changed its name to Divine Chocolate Ltd in order to â€Å"more closely align the company with [its] flagship brand†¦Ã¢â‚¬  (Divine Chocolate, 2011, p. 1). Day Chocolate Company has a significant presence in several countries, most notably in the UK, C anada, and the United States (Divine Chocolate, 2012). In the UK, supermarkets Waltrose and Sainsburys expanded their Day Chocolate Company offerings in 2012, and there is now a Day Chocolate Company 45 gram chocolate bar onboard Virgin Airlines flights (Divine Chocolate, 2012). As a result of the â€Å"demise† of the companys Irish distributor, availability of the products in the Irish market decreased (Divine Chocolate, 2012). However, exports to Scandinavian countries, including Sweden and Norway increased, which served to partially offset the decline in the Irish market for the companys products (Divine Chocolate, 2012). VIII. Day Chocolate Companys (Divine Chocolates) Business Activity Between the years 1998 and 1999 the Day Chocolate Company recorded sales of  £103,500 (Doherty and Tranchell, 2005). By 2004 its annual sales had grown to  £5.5 million (Doherty and Tranchell, 2005). For the most recent year with available financial data, the year ended 30 September 2012, the companys sales stood at  £7.5 million (Divine Chocolate, 2012). However, between the years 2011 and 2012 the Day Chocolate Companys profit on ordinary activities after taxation declined significantly, from  £59,000 in 2011 down to  £27,000 in 2012 (Divine Chocolate, 2012). The decline in profit between 2011 and 2012 was attributed primarily to an increase in administrative expenses (Divine Chocolate, 2012). The cocoa farmed by the Kuapa Kokoo co-operative is shipped to Germany, where an independent chocolate manufacturer combines the cocoa and other ingredients into an edible chocolate product (Social Enterprise Academy, n.d.). The German facility ships the chocolate to a war ehouse in Hull, from where it is distributed to wholesalers and the retailers (Social Enterprise Academy, n.d.). IX. Profits/Surpluses at Day Chocolate Company (Divine Chocolate) The Day Chocolate Company has used profits from its operations to expand within the UK and beyond its core UK market, in particular the United States (Divine Chocolate, 2012). The Day Chocolate Company has also remained true to its core mission, in that it has continued to utilise profits from its operations to improve the lives of the cocoa farmers of the Kuapa Kokoo co-operative in Ghana (Divine Chocolate, 2012). However, the benefits derived from the profits generated by the Day Chocolate Company are not limited to the cocoa farmers (Doherty and Tranchell, 2005). According to Doherty and Tranchell (2005), over 100,000 Ghanaians living in communities with Kuapa Kokoo societies have benefited from necessities such as medical care and medications. Several schools have been constructed, and each school serves an area covering a 4 km radius (Doherty and Tranchell, 2005). The fair trade agreement premiums that accumulated through the year 2005 were sufficient to cover the school ing costs of an estimated 250,000 Ghanaians for an entire school year (Doherty and Tranchell, 2005). A leading cause of death in many parts of Africa, water borne disease, has been reduced significantly, in significant part due to the increased availability of clean water supplies (Doherty and Tranchell, 2005). X. Strategy of Day Chocolate Company (Divine Chocolate) An important aspect of the Day Chocolate Companys strategy has been its concerted effort to convey to the chocolate consumer market the level of misfortune that has plagued the lives of many of the farmers responsible for the cocoa used in the manufacture of all varieties of chocolate products (Social Enterprise Academy, n.d.). Through its website, and through its direct encounters with supermarkets and other potential sellers of its products, the Day Chocolate Company has attempted to show that society can help change the lives of the Ghanaians for the better by purchasing their product (Golding, 2006; Social Enterprise Academy, n.d.). The Day Chocolate Company has also enlisted the help of organisations such as Christian Aid, in efforts to bring their products to the shelves of an increasing number of outlets (Turner, 2013). For instance, Christian Aid ran a campaign called, â€Å"Stock the Choc,† in an effort to have the Day Chocolate Companys products carried at Te sco (Christian Aid, 2009). A similar campaign by Christian Aid succeeded in getting Sainsbury to carry the Day Chocolate Companys products in its many stores across the UK (Lamb, 2008). The Day Chocolate Company recognises that appealing to consumers based on its mission alone will not be sufficient so sustain its organisation (Social Enterprise Academy, n.d.). The emphasis on the quality of the product itself can also be seen at the level of the Ghanaian cocoa farmers (and co-owners) themselves, as demonstrated by one farmers statement in 2008, that â€Å"we [the Kuapa Kokoo co-operative] want people to feel good about our chocolate, not guilty about the poor farmer in the Third World† (Vidal, 1999). XI. Challenges of the Day Chocolate Company (Divine Chocolate) The most significant hurdle for a company such as Day Chocolate Company has been establishing itself in the market. When it first entered the market in the late 1990s, the UK chocolate market was dominated by the companies Cadbury, Nestle, Masterfoods, and Kraft Jacob Suchard (Johnson, Scholes, and Whittington, 2005). The â€Å"highly competitive† UK confectionary market did not experience any significant changes in the handful of years subsequent to the entry of the Day Chocolate Company either (Johnson, Scholes, and Whittington, 2005, p. 757). The difficulty in making an impact in the market can further be seen by comparing the sales teams at the UK confectionary leader, Cadbury, and the Day Chocolate Company (Social Enterprise Academy, n.d.). Whereas Cadbury has approximately 150 members on its sales team, the Day Chocolate Company has but three (Social Enterprise Academy, n.d.). The economies of scale of the larger firms are formidable (Doherty and Tranchell, 2005) . For instance, in the late 1990s Nestle UK expended  £9 million on the promotion of a single product within its vast portfolio, the Kit Kat Chunky (Doherty and Tranchell, 2005). Other challenges that the Day Chocolate Company must confront are not unique to the organisation. Most significantly, macroeconomic factors, such as a stagnant economy may impact demand, leading to another decline in sales, such as that experienced for the year ended 30 September 2012 (Divine Chocolate, 2012). In addition, an increasing number of retailers are beginning to compete in the fair trade chocolate market, which may have an impact on the Day Chocolate Companys market share of what is already a small segment of the total chocolate market (Reed, 2009; McGrath, 2012). XII. Recommendations and Conclusion The Day Chocolate Company has succeeded in carving out a niche for itself in the chocolate market. However, it must continue to expand into new markets, given that other organisations, including some of the large chocolate companies are beginning to compete in the fair trade chocolate market. The company should seek to leverage its experience in the fair trade chocolate market as best it can. The company may need to divert a greater amount of its profits to this growth strategy, and this may impact the amount that it uses in meeting its mission of improving the livelihood of the cocoa farmers in Ghana. Although the company may temporarily fall short of this mission, at least it will provide an opportunity to create a more stable and potentially long-lived social enterprise. REFERENCES Berardi, A. (2013) What does social enterprise offer the third sector in the UK, and how can academic research contribute to the emergence of social enterprise within the research context? Accessed on 5 May 2014 from: https://www.sosyalinovasyonmerkezi.com.tr/yayin/2020130001.pdf. Christian Aid (2009) Stock the Choc. Accessed on 8 May 2014 from: https://www.christianaid.org.uk/images/stock-the-choc-postcard.pdf. Divine Chocolate (n.d.) Education Matters. Accessed on 6 May 2014 from: https://www.divinechocolate.com/us/good-stuff/news/2013/4/education-matters . Divine Chocolate (2011) Divine Story. Accessed on 7 May 2014 from: https://www.divinechocolate.com/us/about-us/divine-story. Divine Chocolate (2012) Annual Report 2011-2012. Accessed on 6 May 2014 from: https://www.divinechocolate.com/uk/sites/default/files/img/pages.pdf. Doherty, B. and Tranchell, S. (2005) New Thinking In International Trade? A Case Study Of The Day Chocolate Company. Sustainable Development, 13(3), pp. 166-176. Fichtl, E. (2007) The Fair Trade Movement in Historical Perspective. Accessed on 6 May 2014 from: https://www.ericfichtl.org/images/uploads/Fichtl_FairTradeMovementHistoricalPerspective.pdf. Golding, K. (2006) The Challenges of Mainstreaming Fair Trade: A Case Study of the Day Chocolate Company. Accessed on 7 May 2014 from: https://www.crsdd.uqam.ca/Pages/docs/pdfColloques/colloque_international/Seance_1/GOLDING%202006.pdf. Gov.UK (2013) Setting up a social enterprise. Accessed on 5 May 2014 from: https://www.gov.uk/set-up-a-social-enterprise. Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy. Prentice Hall: Saddle River, NJ. Lamb, H. (2008) Fighting the Banana Wars and Other Fairtrade Battles. Random House: New York. McGrath, C. (2012) Why Kraft Foods Cares About Fair Trade Chocolate. Accessed on 8 May 2014 from: https://sloanreview.mit.edu/article/why-kraft-foods-cares-about-fair-trade-chocolate/ . Pepin, J. (2010) Social Enterprise and The Social Investment Market in the UK. JPA Europe. Accessed on 5 May 2014 from: https://evpa.eu.com/wp-content/uploads/2010/10/Social-Enterprise-and-the-Social-Investment-Market-in-the-UK-An-Initial-Overview.pdf . RBS (2013) Shortlist for RBS SE100 2013 awards announced! Accessed on 6 May 2014 from: https://se100.net/news/shortlist-rbs-se100-2013-awards-announced. Reed, D. (2009) What do Corporations have to do with Fair Trade? Positive and Normative Analysis from a Value Chain Perspective. Journal of Business Ethics, 86(1), pp. 3-26. Social Enterprise Academy (n.d.) Divine Chocolate Case Study. Accessed on 7 May 2014 from: https://www.theacademy-ssea.org/assets/0000/2881/Divine_Chocolate_Case_Study.pdf Social Firms UK (n.d.) What is a Social Firm? Accessed on 6 May 2014 from: https://www.socialfirmsuk.co.uk/about-social-firms/what-social-firm The Green Machine (2014) Green Machine (enterprise) CIC reusing paint sup plies in Bracknell. Accessed on 7 May 2014 from: https://www.greenmachinecommunityrepaint.co.uk/ Turner, S. (2013) A fairer chocolate. Accessed on 8 May 2014 from: https://www.christiantoday.com/article/a.fairer.chocolate/31748.htm. Usa, I. (n.d.) UK Starting Business (Incorporating) in the UK Guide Volume 1 Strategic, Practical Information and Basic Regulations. International Business Publications: Washington D.C. Vidal, J. (1999) If you eat chocolate then you can make a difference. The Guardian 6 December 1999. Accessed on 8 May 2014 from: https://www.theguardian.com/uk/1999/dec/07/christmasappeal2006.johnvidal.

Support The Frightfullly Hopeful Future of Technological...

Support The Frightfully Hopeful Future of Technological Singularity Imagine. One day your Doctor regretfully informs you the person you love the most in your life is tragically going pass away due to an incurable disease. Instantly, overwhelming feelings of despair and anger burn inside your chest while graphic scenes of funeral details and goodbyes flood your mind eventually propelling you to the rhetorical question everyone asks, â€Å"Is there anything we can do?† Then, The Doctor hands you a pamphlet saying, â€Å"Have you ever heard of nanotechnology?† This Doctor is no â€Å"Mad Scientist†; in fact, he is a highly trained professional that has saved several lives with his proposition. What would you say? This small-scale scenario is the perplexing situation the human race will have to face in the near future. Although some would consider the merger of technology and human biology a completely â€Å"crack pot† idea, It is this hasty decision of judgme nt that explains our reaction to fear. This fear resonates with most of the population globally since it is this very generation that has witnessed the exponential growth of technology. Physically, psychologically and spiritually, technological singularity threatens our future and shakes the foundation of morality. However, does this change bring about negative or positive ramifications? With Technological Singularity’s future being so unpredictable, it would not be wise to ignore its possibilities especially since it was the human race,

What makes a family Free Essays

Family It was three pickoff In the morning on a cold spring night In 1988. My parents woke me up and told me it was time to get ready to go to the airport. We were leaving Russia to move to the united States. We will write a custom essay sample on What makes a family or any similar topic only for you Order Now My grandparents, aunts, uncles and cousins had moved to the United States a few years back. I was ecstatic to be once again reunited with my relatives especially with my cousin Yang who I was very close to. I Jumped out of bed with so much excitement; I can almost see my heart pumping out of my chest. It was a matter of minutes until I was standing by the door wearing my Black oat and a suitcase next to me. Prior to my relatives leaving, we would spend every weekend, holiday and special occasion together. I would Impatiently Walt for the weekend to come so I can see my cousin Yang and my grandparents. My grandmother would bring little gifts every time she saw me and my grandfather was my hero, regardless of the situation I can always count on him to take my side. Upon moving to Brooklyn, I expected that everything would continue to be the same as It once was In Russia. Within a few months, I realized that this was not the case. My grandparents were occupied with their jobs and other responsibilities. Yang lived to ar of a distance to walk so our time together was limited. We no longer had time to see each other on weekends or spend holidays together. My parents had also become extremely busy trying to construct a new life and part of that process required for them to work on weekends. My father was struggling to accept that he was once a business owner in Russia and now a blue collar worker. He soon began to channel his anger and frustration on me. â€Å"l wish you were a boy’ he said, â€Å"l could have taught you manly things. † However, he never took the time to Inquire about my life or teach me about life. Soon, I did not Like spending time at home. I would often find myself feeling lonely and wishing I had a brother or a sister that I can be close to. I wanted to feel what it would be like to be loved again. During my first summer in Brooklyn I felt lonely. School was out of session and I had no friends. I would be at the playground near my house watching other kids having fun. My English was still not very good and I had trouble approaching the other children. One day I noticed a girl that, like me, was also alone. She was sitting on a bench about ten feet away and noticed her glancing at me. Within a few minutes she approached me and asked in Russian â€Å"what is your name? ‘ â€Å"Lairs. And what Is yours† I replied. Her name was Anna. She was instantly very talkative and continued asking me questions such as â€Å"where are you from? † and â€Å"how far is your home? We ended up staying at the playground until sundown, and it was one of my happiest days from that summer. It did not take us long to become close, We spent every day of that summer together and I realized that her situation was very similar to mine. She had also moved with her parents from Russia not too long ago. Eventually they divorced and her mother gave the responsibility of raising her to her grandparents. Unlike me, however, Anna was stronger and more confident. She had control of her emotions and could not be Influenced by others. The opinion of others also did not matter. Be who you want to be, not who others want you to be,† she said â€Å"But I don’t want to make my father 1 OFF â€Å"He is already always angry, what difference does it make? † she said â€Å"I am scared I will be in trouble† I said â€Å"We will face the consequences together† she said I thought that if I followed her lead, maybe I too can come out of my shell and be as strong as she was. Anna was protective of me and cared for me as if I was her little sister. After school we would often go to her grandparents’ house for dinner and it made me nostalgic of the days my grandmother would cook for me in Russia. After a while her grandparents accepted me as their own grandchild. They invited me to all of their special occasion and holidays. I began spending more time with them instead of my own family. One morning after leaving her grandmother’s house to go to school, Anna stopped unexpectedly. She grabbed my arm and said â€Å"can I ask you a question? † I was confused and hesitantly said â€Å"sure. † â€Å"Do you want to be blood sisters? † she asked. â€Å"How do we do that? † I asked puzzled. Let’s both cut our pinkies, put them together, and we will become sisters by blood† she answered. We felt so strong about our friendship that on May 21st, 1992 we created an unbreakable bond. Anna became the sister I had always wanted. When I needed to turn to someone for advice or for help I turned to Anna. She did not Judge and supported me regardless if I was right or wrong. I have never trusted a person so much in my life. We discussed education, relationships, careers and marriage. This was something I was unable to do with any of my family members. Of course, we would have our disagreements and fights, but through it all our bond always minded strong. We laughed together, cried together and shared life’s ups and downs together. I was blessed to have her in my life. When I reminisce about that day, I realize that although what we did was childish, it also speaks a powerful message. While your parents will always be your family through birth, as you go through life you determine who you can call family. Anna showed me that this can extend to include those that are not your relatives. In my life, Vive formed my family to be people that influence my life, who help me through tough times, and who love and support me regardless of the circumstances. How to cite What makes a family, Papers

The Capital Structure of Entity

Question: Write an essay onThe capital structure of an entity . Answer: Introduction The capital structure of an entity presents how the entity finances its operations with the help of different sources of funds. The financial structure of an entity is the balance between all the liabilities and equity. It is the mix of long term and short term sources of funds used by a firm. It is the mix of debt and equity funds of an enterprise. It is important for an entity to have an optimal debt equity balance which generates the maximum value for the firm. The optimal debt equity mix should be such that the cost of capital for the entity is the least. The financial structure of the firm is very important, as the whole of the operations of the company is dependent on its finance (Vanderbeck, 2013). Healthy finance gives healthy and smooth functioning activities. Equity The equity capital represents the difference between value of assets and cost of liabilities. As per company accounts equity refers to shareholders equity. Equity is the cheapest source of finance. A negative equity is called as shareholders deficit. The equity shareholders of a company are the shareholders of the company who invest in the company by buying the equity shares of that company in anticipation of earning dividends. When a company is formed it needs capital in order to operate its business, so the company raises capital by issuing equity (Needles Powers, 2013). The shareholders subscribe to the share of the company and then the shares are allotted. Now, this becomes the permanent capital of the company which needs not be refunded. Only at the time of liquidation after payment of all the liabilities if any amount is left is distributed among the shareholders proportionately. The equity fund is dedicated wholly for the operations of the entity. The value creation of the shares is a source of investment appraisal for the equity shareholders. The best part of equity fund is that is has no associates costs unlike debt funds. The option to pay dividend is in the hands of the company (Vanderbeck, 2013). Even if the company earns sufficient profits the company is not obligated to pay dividends because the investors totally understand that the funds are really important for the growth of a company. Also the equity funds help to maintain the leverage of the company (Needles Powers, 2013). There is no obligation on the part of the company to pay back the funds. But the main drawbacks of equity financing is that, raising equity as a source of finance is demanding, costly and a time consuming method. It may require a lot of attention of the management. In order to raise equity, the company needs to have comprehensive check on its background and past performance, this if very often required by the potential investors. The company has to spend a lot of resources and time on this irrespective of the fact if it manages to raise any fund or not. Also there are a lot of legal and regulatory norms which are to be taken care of before raising funds through equity (William, 2010). Therefore, we see that equity as a source of finance is one of the best ways to raise capital for a business. It has a lot of advantages and one of the cheapest sources of finance. The only problem which lies is the issues related to its procurement. The company needs to build up an image and keep up progressive work if it desires to keep the business funded by equity. Overall, equity represents the own funds of a company. Debt The debt portion of the capital of a company represents the cash borrowed by the company at a fixed rate of interest with a fixed date or intervals to repay it. Debt may be represented by a loan or sale of debentures, the form will not change the nature of the debt. The lender always has the right to get back his money he lends along with the interest or as the agreement specifies (Needles Powers, 2013). Lending to a company to a company in theoretical terms is safer than in practical world. Investment through debt from lender point of view is more risky and it also provides higher awards. The performance of the company is the whole basis for procurement of loan. If the company has a good asset base with continuous profits then they can easily procure loans from the market. The main advantages of debt financing include no participation of outsiders in the business. When a company raises fund through a loan, the lender will not be there to tell the management on how to use the funds, it be the wholly decision of the management. Once the loan is repaid, the relationship with lender comes to an end unlike equity funding. Another advantage of debt financing is tax savings (Needles Powers, 2013). The interest paid in connection with loan is tax deductible and helps the companies to reduce its tax burden. Also when a company has taken loan it knows from before at what time and intervals is it required to pay interest along with exact numbers. This way the company can prepare its budget and check for availability of funds accordingly. The disadvantages of debt financing is that the companies need to have a good credit rating in order to procure loan, else it would the terms and conditions of loan shall be very harsh on the company. The company will have to maintain a series of smooth cash flow so that it is always has availability of funds to pay back loan instalments and interest amounts. If the lender would require collateral in connection to a loan provided by him, then this can bring the assets of the company at risk. So in order to decide if to or not to use debts as a financing tool the management needs to answer a few questions. It needs to check if it wants to have full control over the business of the company. Also, it needs to know it can pay back the loan timely and efficiently and if it would be comfortable in doing so. The company needs to check its credit worthiness before taking a loan and also it the worthiness is enough to get the company the desired amount of debt (Horngren, 2013). The management of the company needs to check it has sufficient assets to provide as collateral for the loan. Comparison of Debt and Equity of two companies For the assessment we have chosen two biggest retails which are listed on the London stock exchange, the first is Kingfisher Plc which has a market cap of 7237.25 million and the other is Next Plc which has a market cap of 7368.98 million. We have calculated few liquidity ratios for both the companies for better understanding and comparability. Debt Equity Ratio: the D/E ratio is a finance ratio which helps the entity to measure its financial leverage. It helps the company to calculate what part of its capital is financed by debt and what by equity (Horngren, 2013). Debt Ratio: the debt ratio helps the companies to calculate what part of the companys assets is financed by debt or outside funds (Needles, 2011). Equity Ratio: the equity ratio helps the companies to calculate what part of the companys asses is financed by equity or own funds (Horngren, 2013). Interest Coverage ratio: this ratio helps the investor to calculate the companys ability to meet the interest payments as they fall due. Earnings per share: this ratio helps the investor to calculate profit earned on each share of the company. Analysis of Debt and Equity of Kingfisher Plc Kingfisher Plc is the largest home improvement retailers of Europe and the third largest in world. It has its headquarters situated in London. It has around 1176 stores in across 11 countries all over the world (Kingfisher Plc, 2015). Following are the equity, debt and asset components of the company for last five years: 2016 2015 2014 2013 2012 Total Debt 3508 3474 3503 3741 3906 Total Equity 6186 6239 6317 6156 5727 Total Assets 9,694 9,713 9,820 9,897 9,633 We see that the company has over the period of five years tries to maintain is debt is to equity ratio of near about 0.5 to 0.7. This shows that the company is properly leveraged and there are no major variances in the financing of the company. The capital structure of the company is consistent and is healthy. Analysis of Debt and Equity of Next Plc Next Plc is another one of the largest clothing, footwear and home products retailers with about 700 stores. It is the largest clothing retailer of England, having left behind Marks and Spencer in the year 2012 and 2014 (Next Plc Ltd, 2015). Following are the equity, debt and asset components of the company for last five years: 2016 2015 2014 2013 2012 Total Debt 2,018.30 1,960.40 1,858.40 1,608.00 1,631.50 Total Equity 311.80 321.90 286.20 285.60 222.70 Total Assets 2,330.10 2,282.30 2,144.60 1,893.60 1,854.20 We see that the capital structure of Next Plc is not very balanced. The proportion of debt as compared to equity is very high. This indicates that most of the operations and assets of the company are financed by loan funds (Lanen, 2008). The company is under huge obligation and it needs to take measures to improve its equity capital base. Comparison of the ratios of two companies Debt Equity Ratio Debt Equity Ratio 2016 2015 2014 2013 2012 Kingfisher Plc 0.57 0.56 0.55 0.61 0.68 Next Plc 6.47 6.09 6.49 5.63 7.33 The healthy debt to equity ratio lies within 0.5 to 2 depending on the industry in which the company operates. We see that Debt equity ratio of Kingfisher Plc is normal whereas that of Next Plc has crossed the threshold of 2. It is a bad sign for the company and the management of Next Plc needs to take some measures in order to correct it. Debt Ratio Debt Ratio 2016 2015 2014 2013 2012 Kingfisher Plc 0.36 0.36 0.36 0.38 0.41 Next Plc 0.87 0.86 0.87 0.85 0.88 Debt ratios of 0.4 or lower are considered well whereas ratio of 0.6 or more is not considered healthy. The debt ratio of kingfisher Plc has maintained over the period of 4 years and is below 0.4. But the debt ratio of Next Plc is very high and is not appropriate. It represents high leverage which can bring the company at stake (Horngren, 2013). Equity Ratio Equity Ratio 2016 2015 2014 2013 2012 Kingfisher Plc 0.64 0.64 0.64 0.62 0.59 Next Plc 0.13 0.14 0.13 0.15 0.12 The equity ratio of 0.6 and higher is considered good and ratio of 0.4 and below represents financial instability for the company. Kingfisher Plc has maintained its equity ratio around 0.6 over the period of five years. But the equity ratio of Next Plc is not appropriate. This represents that the company is mostly financed by loan funds. Interest Coverage Ratio Interest coverage Ratio 2016 2015 2014 2013 2012 Kingfisher Plc 24.27 50.54 64.25 37.37 26.71 Next Plc 26.44 25.45 24.54 22.97 19.82 Higher the interest coverage ratio better it is for the company. We see that the interest coverage ratio of Kingfisher Plc is not very stable but still at a better position than next Plc. The level of interest coverage ratio for Next Plc has maintained a steady form, but still the company needs to improve its performance, Earnings Per Share Earnings Per Share 2016 2015 2014 2013 2012 Kingfisher Plc 17.77 24.19 29.76 23.77 26.95 Next Plc 442.57 419.62 366.12 297.80 282.01 The earnings per share dont determine the performance of the company; it is the wealth maximization on which the company should focus. We see that EPS level of Kingfisher is very low as compared to Next Plc, this is so because of the debt equity ratio. The capital structure of Kingfisher has a higher proportion of Equity as compared to Next plc. Having more debt in capital structure creates a lot of burden on the company. Recommendation From the above calculations and graphs it is very clear that the capital structure of Kingfisher Plc is healthy and needs no changes, whereas the capital structure of Next Plc is very inappropriate and is highly levered. The capital structure of Next Plc requires immediate attention. The liquidity of the company will be at stake if the company continues to use this proportion of loan funds from outsiders. Even though Next Plc is the largest cloth retailers with highest revenue; the liquidity of the company if not proper can result in tremendous losses to the company (Albrecht et. al, 2011). Conclusion Equity and debt plays a vital role in shaping the destiny of the company and a comprehensive evaluation of the company considering these two provides a clear-cut picture. In the above report too, the comparison is done between Kingfisher Plc and Next Plc with the help of equity and debt. Therefore we see that proper generation of operating revenues is not the only feature which determines the financial position of the company. The capital structure of the company plays a very important role in determining the financial status of the company (Shim Siegel, 2009). References Albrecht, W., Stice, E. Stice, J 2011, Financial accounting, Mason, OH: Thomson/South-Western. Horngren, C 2013, Financial accounting, Frenchs Forest, N.S.W.: Pearson Australia Group. Kingfisher Plc 2015, Kingfisher Plc Annual Report and accounts, viewed 8 July 2016, https://www.kingfisher.com/index.asp?pageid=61 Lanen, W. N., Anderson, S Maher, M. W 2008, Fundamentals of cost accounting, NY: Hang Loose press. Needles, B. E. Powers, M 2013, Principles of Financial Accounting. Financial Needles, S. C 2011, Managerial Accounting, Nason, USA: South Western Cengage Learning. Next Plc Ltd 2015, Next Plc Ltd. Annual Report and accounts 2015., viewed 8 July 2016, https://www.nextplc.co.uk/~/media/Files/N/Next-PLC-V2/documents/reports-and-presentations/2014/next-annual-report-2015-final-web.pdf. Shim, J.K Siegel, J.G 2009, Modern Cost Management and Analysis, Barron's Education Series Vanderbeck, E. J 2013, Principles of Cost Accounting, Oxford university press William, L 2010, Practical Financial Management, South-Western College.