Financial Risk and Capital Structure of Advance Auto Parts, Inc.

Milenne Rivera

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.ACCOUNTING

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

Writing about Advance Auto Parts (AAP) is interesting because the company has operated since 1932 and has faced significant industry and operational challenges over time. Recent announcement regarding the planned closure of more than 700 stores by 2025, as part of the turnaround strategy under CEO Shane O’Kelly, further highlight the importance of analyzing the firm’s financial performance and capital structure. This project uses Bloomberg Terminal data to examine key financial variables. Beta measures AAP’s systematic risk relative to the market and influencing its cost of equity. WACC combines the cost of debt and equity to estimate the firms overall financing cost and is use to value cash flows. Free cash flow reflects the company’s ability to generate cash for investors. Shares outstanding determine equity value per share, while tax rate affects the after-tax cost of debt. Market return is used for CAPM to estimate the equity risk premium. Weighted debt and equity represent the firm’s capital mix, and Hamada’s formula links unlevered and levered beta to show how leverage affects risk and cost of capital. Overall, these data for the project allows researchers and investors to evaluate how financial risk, capital structure, and cash generation influence Advance Auto’s market valuation and strategic financing decisions.