Diageo PLC Harvard Case Solution & Analysis


1. How has Diageo managed its capital structure?

This means the competitors of Diageo Company are more in healthy position to pay their interest charges.

The organization gearing ratio is 59% as compared to the market average gearing ratio with 66%. This shows that the competitors of Diageo Company are using more debt finance.The average is calculated on the alcohol, packed foods, beer, and restaurants that are 62%, 41%, 77% and 85% respectively. The market capitalization of the company is 25% as compared to its competitors. The market capitalization of alcohol, beer, packed food and restaurants are 28%, 17% 19% and 21% respectively.

These results show that with respect to the interest covering ratio the Diageo is less efficient than its competitors. On the other hand in market capitalization and gearing ratio Diageo is in better position than its competitors. The company is deciding to increase its leverage ratio but it needs to analyze that its interest covering ratio is already5 times less than the average market interest covering ratio of its competitors.

On the other hand gearing ratio is much less than its competitors which has made its rating A+ unlike the rating of its competitors with A-, this good rating has make easy for the company to acquire more debt financing on favorable terms................

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