Question

Show how the capital structure of Best Buy has changed over time on a Table and a Graph. Does it appear that the company has a stable target debt ratio?

Answer 1

		(AMOUNT IN $)
PARTICULARS / YEAR	SHAREHOLDERS EQUITY	LONG TERM DEBT	DEBT TO EQUITY
2019	3306	1332	0.40
2018	3612	811	0.22
2017	4709	1321	0.28
2016	4378	1339	0.31
2015	5000	1572	0.31
2014	3989	1612	0.40
2013	3715	1153	0.31
2012	4366	1685	0.39
2011	7292	711	0.10
2010	6964	1104	0.16

The following table shows the Shareholders Equity which comprises of (Share Capital and Reserves) and Long Term Debt ultimately calculation Debt to Equity by the formula

Debt to Equity = Long Term Debt / Shareholders Equity

The chart for all the 3 is given below:

SHAREHOLDERS EQUITY 8000 7000 6000 5000 1 2 3 4 5 6 7 8 9 10 11

This chart is showing the movement of Shareholders Equity where 1 means Year 2010 and 10 mean year 2019. The chart shows that the Shareholders Equity has come down consistently which shows that the company has not been raising capital and also distributing profits or reinvesting them back into the business which is a good sign.

This is the chart showing movement of Long Term Debt:

LONG TERM DEBT 1800 1600 1400 1 2 3 4 5 6 7 8 9 10 11

In terms of movement of Debt the company was trying to bring the debt down from years 2015 to 2018 however They have increased Debt considerably this year i.e. 2019

The below chart is showing the movement of Debt to Equity:

DEBT TO EQUITY 1 2 3 4 5 6 7 8 9 10

As you would have noticed that the movement of Debt to Equity and Long term Debt has been very identical, however the Equity chart has not moved in alignment with the same. Here if we talk about a target debt to equity, the ratio has fluctuated a lot over the last decade however it has never crossed 0.4 even after reaching that point 3 times in the last 10 years. So even though there isnt a clear target with regard to Debt to Equity being constant the company is surely striving to keep the ratio below 0.40.

So to Summarise, There hasn't been a clear trend with respect to movements in the capital structure, currently the Debt to Equity is at 0.4 which is the highest in the last 5 years showing that the company has taken more debt than raise money through equity and even though this has been the case the company has been able to keep the ratio below 0.40 showing that it atleast has a restrictive barrier with regard to this ratio