Optimization of the capital structure of an agricultural company in the Czech Republic

Abstract

The topic of optimizing capital structure is very important for a company to work efficiently and reliably. It is important for every company to optimize everything so that they have the highest possible efficiency. Entrepreneurs also try to make this optimization last them as long as possible. Therefore, the aim of this paper is to determine the optimal capital structure of an agricultural company operating in the Czech Republic. The base source of data is the closing data of individual agricultural companies from the Albertina database of Bisnode. More than 9,000 agricultural enterprises operating in the given sector of the national economy in the Czech Republic are recorded in this data set. The calculation of the WACC method and the level of debt of individual agricultural companies are used. Subsequently, the equation for calculating the cost of capital is determined using power regression. Here we also obtain the value of reliability, which in this particular case is not ideal, but still reasonable. A line chart is used to determine the optimal interval for the agricultural company. The optimal debt interval comes out to 20 to 25%, at which the cost of capital is declared to be from 22 to 24%. If agricultural companies had higher or lower debt ratios, it would be inefficient for the enterprise.

Keywords

• optimal capital structure
• debt
• power regression
• cost of capital
• agriculture
• optimization