Essay: Stock’s sensitivity to the market

Essay: Stock’s sensitivity to the market

Another recommendation following the example of for would be to refrain from government loans Robin, (2001). The use internal resources and knowledge to restructure the balance sheet without the help of the government should see the success of the company in any market.

This has the effect that it reduces the debt to which the cop any would acquire through the borrowing from the government. Another approach would be to swap all the equity for debt. however this is risky because at the end of the day a company must service its debts unless they risk the problem of default and/or bankruptcy. At a debt-to-equity ratio of 0.28, this is a minimum. In theory, this Disney’s optimal capital structure because it minimizes their cost of capital – after 0.28, higher ratios begin to produce a higher weighted average of cost capital Forbes (2010). Beta, is a measure of risk, is a measure of the stock’s sensitivity to the market. A beta of 1.0 means the stock will track closely with the market. But if it is greater than 1.0 it means the stock is more volatile than the market. Disney’s beta was at 1.15. this means slightly more risk than the market on both the upside and downside. Meanwhile electronic Arts had a beta of 0.70 and is financially solid Forbes (2010).

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