A critical examination of the capital structure of Royal MailIntroductionThis report will critically examine the capital structure of Royal Mail (RM) and the implications this has for the company in reference to its apparent value and return demanded by stock investors. The report will take data from the latest set of accounts published by RM and accompanying investor reports. It will also reference investor analysis and current events to attempt to obtain a qualitative impression of RM's stock value. The numerical analysis will not use information relating to time spent beyond the last full accounting period, but the conclusion will attempt to reconcile any action. price movement with analysis. The report will evaluate three models for their suitability for analyzing RM's capital structure (weighted average cost of capital (WACC), capital asset pricing model (CAPM) and dividend valuation model). Royal Mail is a FTSE 100 company. Founded almost 500 years ago by Henry VIII as 'The King's Post' (http://www.royalmailgroup.com/ 2015). On 15 October 2013, the UK government began the process of transferring ownership of the RM from public hands to private investors. In the first sale, the government sold shares worth £1.98 to a mix of staff and institutional investors. The shares were divided such that the government retained a 30% stake, RM staff received 10% (for free), and 60% was sold to institutional investors. The government sold its remaining shares on June 11 (15% to investors and 1% to staff) and October 12 (13% to investors, 1% to staff) (House of Commons 2015). any company is important to investors trying to determine whether ... middle of paper ...... has achieved a higher stock price. The WACC model, however, looks at cash generated and RM's pre-tax profits were £569m (an operating profit of £595m), above the required return. Post-tax profits of £431 million. If we assume that investors would want a higher return than suggested by the WACC due to unquantifiable risk, it seems reasonable for a rational investor to view RM shares as overvalued, but not as much as an investor using the model of dividends. For a more leveraged company (Arnold 2013, p. 697), it would appear that the RM has very little opportunity to increase its debt capital unless it can convince investors that the profits are likely to be significant. Unfortunately, the annual report does not suggest that such growth is likely in the short term, due to increased competition from parcels and falling letter sales (RM 2015).