System for determining and displaying optimal ratio of debt capital to equity capital by optimizing capital structure
A system determines the optimal debt and equity financing ratio using bond and stock option default probabilities, addressing the lack of effective capital structure optimization in existing methods, enabling corporate value maximization through risk advisory services.
Patent Information
- Application Number
- JP2023110326
- Authority / Receiving Office
- JP · JP
- Patent Type
- Applications
- Current Assignee / Owner
- Filing Date
- 2023-06-17
- Publication Date
- 2024-12-27
- Estimated Expiration
- Not applicable · inactive patent
AI Technical Summary
Existing methods fail to determine the optimal financing ratio between debt and equity, limiting effective capital structure optimization and corporate value maximization.
A system determines the optimal financing ratio by constructing a relational expression based on the equilibrium point of default probabilities for bond and stock options, considering both debt and equity as synonymous with loans, and optimizing the capital structure to maximize total market value.
Enables risk advisory services to advise on maximizing corporate value by identifying the optimal debt and equity financing ratio, providing a new method to compare corporate values based on capital structure optimization.
Abstract
Description
[Technical field] The present invention relates to a system for determining and displaying optimal debt and equity financing ratios. [Background technology] A well-known technique that can be calculated using a binomial model. Summary of the Invention [Problem to be solved by the invention] There is no method for determining the optimal ratio of debt to equity financing. [Means for solving the problem] The optimal debt to equity ratio is calculated as follows: Transaction example (▲1▼ and ▲2▼ are the same company) ▲1▼ Bond trading Bond Price:D Period: Td year Recovery rate at default: R% Default settlement amount: D(1-R%) Premium:Pd ▲2▼Stock options Stock price:E Type:Put Number of shares: X shares Period: Te years Strike price: E (At The Money) Knock-in price: 1 yen (assuming default) Exercise method: American type Default settlement amount: EX Premium:Pe The relationship between the two is constructed by finding the equilibrium point of the default probability. When Td=Te, the default probability is equal, so the following relationship holds: Default probability = Pd / D(1-R%) = Pe / EX This formula expresses the optimization of the fundraising ratio by finding the equilibrium point between the values of bonds and stocks. Since corporate fundraising includes bonds and borrowings, both of which are synonymous with debt, the above formula expresses the optimization of the fundraising ratio between debt and stocks. In other words, it becomes possible to consider the optimization of the capital structure. It becomes possible to identify the optimal capital structure that maximizes a company's total market value. For example, if a company is raising funds, and it can be determined that raising funds through bonds rather than stocks will increase the company's total market value, it can be determined that raising funds through bond issuance will increase the company's value rather than through a capital increase. Until now, corporate value has been compared based on stock market capitalization, but what is proposed here is the maximization of asset value by optimizing capital structure. We would also like to propose this as a new model for evaluating corporate value. Effect of the Invention We provide risk advisory services to advise on how to maximize corporate value by determining the optimal debt and equity fundraising ratio. For example, if a company is raising funds and it is determined that raising corporate value through bonds rather than equity will increase the company's value, then issuing bonds will be a fundraising method that will increase the company's value more than issuing equity. Until now, corporate value has generally been compared based on the market capitalization of stocks, but what we propose here is a method of comparing corporate value by optimizing the composition of debt and equity. For example, it is possible to suggest to debt-free companies that raising funds through corporate bonds will increase their corporate value, and depending on how the debt and capital structure is optimized, it is possible that companies will emerge that will raise funds entirely through corporate bonds or entirely through stock. As empirical research progresses in the future, the full picture will become clear. Depending on the results of empirical research, it may bring about a revolution in the global economy. DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS The system calculates the optimal ratio of debt and capital structure for each company, displays it on the screen, and provides it to the user. It is also good to use the Internet screen. It will be used as a reference for risk advisory services that determine the optimal ratio of each company's debt and capital structure and advise on how to maximize corporate value.
Claims
[Claim 1] A system that calculates and displays the optimal ratio of debt and equity financing through capital structure optimization.