Analyzing the Optimal Capital Structure of Winmark Corporation

Zilu Zhang

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

This study explores the process of determining the optimal capital structure for Winmark Corporation, a leading U.S. retail franchisor. The objective of this analysis is to investigate how various levels of leverage influence the company’s cost of capital, market value, and financial risk. By employing the synthetic rating method, we simulate different leverage scenarios and calculate the weighted average cost of capital (WACC) for each. The study also evaluates the effects of changes in levered beta, which are influenced by the company’s debt levels and other risk factors. Winmark, a representative small-cap company listed in the S&P SmallCap 600 index, is an ideal case for understanding how leverage and capital structure decisions impact cost of capital in the small-cap retail sector. The findings emphasize the significance of capital structure choices in shaping a company’s cost of capital and market value, especially for small-cap firms. The results provide valuable insights into how companies like Winmark can optimize their capital structure to balance growth potential with financial risk.