Massey-Ferguson Capital Structure Analysis

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Massey-Ferguson Capital Structure Analysis

. Massey-Ferguson operates within the farm & industrial machinery and diesel engines industry. Success in this industry requires having a large Research and Development department to keep up with new technologies, concentration more in political and economical stable countries, and building strategic partners and contracts. A large part of the industry is heavily affected by interest rate fluctuations and the current state of the economy.

2. The market strategy of the Massey Corporation was to increase growth. Growth was achieved through large amounts of debt financing in business ventures that fell outside the core competency of the Massey Corporation. While growing, Massey failed to assess the impact of a market downturn. As a result, when the market began to slow so did Massey's business ventures. The debt used to finance the growth carried interest payments that would not stop in cases of poor financial performance.
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3. We feel that a predominantly equity capital structure would be the most beneficial for the Massey Corporation. Since their sales are affected by the market strength and interest rates, equity would allow for capital without the interest payments that may not be able to be made when the market is in a recession or interest rates are high.

4. The capital structure for Massey Corporation during 1976 is roughly 2 parts debt to one part equity. This does not appear to be the optimal structure because Massey is affected by market strength. When the market takes ...

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