Corporate Finance of Touristik Union International
The present paper has identified that the most appropriate financial theory that is applicable to the TUI Company is the trade-off theory. The company is trying to balance the cost and benefits associated with both equity and debt. Source of capital in the company is equity, bonds, bank loans and finance leases among other financial liabilities. Each of the above sources of capital has both advantages and disadvantages. It is possible to compute the value of the company by calculating the weighted average cost of capital (WACC) and shareholder value. WACC refers to an average rate of interest at which a company is expected to pay all its providers of capital. The seven drivers of shareholder value are growing in sales, operating profit margins, tax rate, working capital growth, fixed capital growth, cost of capital and the period of competitive advantage. The total value estimated by the shareholder value drivers of the company was €16603.7 million in 2019. When the shareholder’s drivers are increased by 5 percent the company value of the company will increase to €21,443.61 million. The disadvantages of shareholder value analysis include difficulty in computations, difficulty in implementation, failure to include social needs and the possibility of making errors in the calculation of shareholder value analysis. Touristik Union International (TUI) is a multinational German company that was established in 1968. It is listed at the Frankfurt stock exchange and has its headquarters in Hanover, Germany. TUI AG is the world largest tourist firm globally. The company offers scheduled and chartered passenger airlines, resorts, and hotels, cruise ships, holiday package as well as travel agencies. According to Taylor and Sansone (2007), capital structure is determined by the composition of target collateral pool, investment flexibility, the condition existing in the market for the collateral, weighted average cost debt capital and the desired ratings of the bonds in the capital structure.