Capital Structure Modeling

In this paper we represent different approaches to optimal capital structure modeling on the example of companies of different life cycles: UC Rusal, O’Key and Dalienergomash. Firstly we reviewed companies and then described the application such models as: EBIT-EPS ratio, cost of capital model (WACC), operating revenue model. In the conclusion we consider current capital structure of companies and results obtained using different models.

1.Companies description

O’Key

O’Key is one of the largest Russian multi-format federal retail chains with 73 stores with total selling space of c. 358,000 sqm. It is the fourth largest food retailer in Russia by 2011 revenue (excluding international retailers Auchan and Metro). The Company is primarily focused on the hypermarket format, but also present in the supermarket format (O’Key Express). Store layout is similar to classic European hypermarkets with a wide product range (from 35,000 to 64,000 SKUs) and a high share of fresh products. Historically Okey is one of the leading players in St. Petersburg but the Company started aggressive regional expansion in 2005. The Company has one of the highest revenue and EBITDA per sqm of selling space in the Russian retail sector.

Okey has outperformed Russian stock market since it IPO which confirms that the growth strategy adopted by the company is considered to be successful by investors. Russian retail market is expected to further continue its growth in the coming years with hypermarket segment outperforming the total food retail market (based on Euromonitor forecasts). Thus, in our view, positive overall market performance coupled with successful expansion strategy may help Okey to keep outstanding growth rates in the future.

UC Rusal

The global leader in the aluminum industry. Products to customers in 70 countries. The