Determining the Optimal Capital Structure of Coal Company

Abstract

This study examines stock price decline and coal price uncertainty as business issues. PT Delta Dunia Makmur Tbk has high debtto-equity ratio. High dividend-equity companies pay more interest. Interest costs reduce a company’s net profits and cash available for investment or shareholder payout. This may affect shareholder income and corporate growth. To raise net income and firm value for investors and rebuild trust, PT Delta Dunia Makmur Tbk management must estimate a favorable cost of debt and equity. This study employed secondary data. This study uses 2018-2019 DOID financial statements as secondary data. The lowest WACC helps PT. Delta Dunia Makmur Tbk choose the best capital structure. Calculate capital structure debt and equity costs using the debt-toequity ratio. The Damodaran synthetic rating table calculates loan cost using the interest coverage ratio and PT. Dunia Makmur Tbk default spread value. The actual debt ratio is 83.69%, while the optimal debt ratio is 34%. According to Damodaran, the corporation is overlevered since actual optimal (83.69% > 34%). Delta Dunia is currently in the “GREY ZONE” of the Altman Z-score calculation, hence it is not at risk of bankruptcy. Therefore, the corporation can finance new projects with retained earnings or equity, pay off debt with retained earnings, reduce dividends, issue new shares, or pay off debt. From PT Delta Dunia Makmur Tbk’s financial statements, the debt ratio is 83.69%, the equity ratio is 16.69% with a cost of equity of 19.75%, the WACC generated is 11.02%, and the firm’s value is $965,639,737.72. After simulation, the optimal capital structure for PT Delta Dunia Makmur Tbk was 34% debt, 66% equity, 10.39% cost of equity, and $1,166,687,666.77. According to the Altman Z-score calculation, PT Delta Dunia Makmur Tbk is in the GREY ZONE and not at risk of bankruptcy, so the best way to change the debt ratio is gradually so the company can fund good projects or pay debt with new equity and retained earnings.