Capital Structure Strategy for Improving Value of PT Unilever Indonesia Tbk

Abstract

The goal of the firm is to maximize the value of the firm and increase the shareholders prosperity. PT Unilever Indonesia Tbk (UNVR) is one of the fast-moving consumer goods (FMCG) companies and has been a market leader for several consumer goods products. During 2021, UNVR stock price was corrected for -44.08%, indicating a decrease in firm value. This was contributed by a declining financial performance as the net income decreased -19.62%. Financing decisions are one of the most important to consider in order to maximize the firm value. UNVR financing decision has been almost all equity financing with debt to capital ratio at 1.06%. Based optimal capital structure simulation using Damodaran framework, increasing the debt to capital ratio to 10% can minimize the cost of capital to 11.52% and maximizing the firm value to Rp 174,883,942 million. To apply the change in financing mix, it is recommended for the company to use the debt financing in a new investment and do stock buyback.

Keywords: Optimal Capital Structure, Firm Value, Financing Decisions, PT Unilever Indonesia Tbk.