Capital Structure : Samsung and Intel Essay

As per the table above, it is clear that in 1997, the capital structure of Samsung Electronics was highly leveraged. The capital structure of Samsung was 85 % debt and 15 % Equity compared to Intel with a 33 % debt and 67% Equity as per the financial data Year End 1997. The healthy blend of a 33 % debt to a 67 % of equity for Intel ,a chip manufacturing firm based in the US, indicates that the company is efficiently managing its investments by optimally utilizing debt to eventually result in an increase in value for the shareholders.

Samsung Electronics has 70 % of its USD 9 billion debt in the form of foreign currency loans. This is a major risk element considering the exchange rate hit the company faced.

This huge dependence on foreign debt is something that explains the inherent discrepancy that existed because of Samsung being part of a Korean Chaebol. Like most Korean Chaebols, Samsung had the strategy of increasing size and ignoring profitability. Access to credit was via informal credit markets and the support of the Government.

Also because most of the debt was also issued via a cross debt guarantee, this caused a spiral effect when a shock hit. There is also an investment of Samsung Electronics into an unrelated industry namely Samsung Motors. 21.1 percent of the stake at Samsung motors was acquired.

Such an unrelated investment is not a practice amongst a comparable firm Intel. Also as per the table, Samsung has a low equity which implies low shareholder commitment to business via the channeling of own funds. Intel on the other hand has high equity amounts which back up the commitment of the company stakeholders to business. Over all as per table the major difference between the two companies is that Samsung has raised a lot of capital via debt, because of the weak government structure and poor corporate governance.

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