Placement Logbook March 2014 Name of Student: Dedy C.D.P.

Budhy (539812) Name of Placement Supervisor: Andy Denz Number of Attachment: 1 set

Personal Objective: Able to function professionally and at HBO level as a full-time employee in an international business environment for 21 weeks. Manage personal continuous development while working in the placement company, and understand the process I have been through in relation to the theories. Able to work with different colleagues, being culturally tolerant and adaptable, and have the ability to operate in new or unfamiliar working environments. Able to identify an interesting business aspect in the company, then carry out a research project that can be helpful for the company. Ultimately, I expect that I would be able to further develop the following competencies: International Accounting, Business Research Method, Intercultural Competence, Business Communication, Learning and Self-Development

Competencies I Have Worked On This Month In the previous month, mainly I worked on my international accounting competency. Right now, I am not so confused about my daily tasks and projects because I have been doing the tasks every day since the previous month. I get the feeling that my company coach is now giving me more tasks than the previous month, which for me is a good indicator that I have understood the system and the tasks relatively well. In addition, while I am taking care of the fixed assets disposal, I have the chance to improve my communication skills and collaborate with other employee from different department. I have to cooperate with an employee from IT support, which also handles the registration of laptops and desktops PC. The fixed assets disposal is not done yet since the fixed assets registration of the company is not done really well, so some of the fixed assets are not recorded or gone missing. However, slowly we are able to complete and revise the fixed assets registration bit by bit. I also have the chance to develop my business research method competency. Every day, whenever I have completed all of my daily tasks, I will work on my dissertation and

placement report. As what I have written in the workplace scan, I am given the full authority to gather the financial data that I need, so it gives me a lot of room to improve my business research method competency because I am able to do a research with a topic that I think to be challenging and interesting at the same time.

Progress of My Project Actually, I have to change the topic of my project. Initially, it was the effect of working capital management on company profitability. Actually, I had finished the introduction and literature review. However, I found out that the number of data / observations that I had was not statistically sufficient, so I could not perform the analysis that I wanted. Thus, I had to tweak the topic a little bit. I changed the topic of my project to the effect of capital structure on company profitability (see appendix for the overview of this new project). I have had the permission from my company coach and this time I have made sure that the number of observations is sufficient. Therefore, I am sure that this time there will not be any problems. Currently, I am done with the first and second chapter (introduction and literature review). I am now working on the third chapter (methodology). Actually, I already have everything in my notes and in my mind, including the result and the analysis, so I just need the time to transfer everything into words.

Plans for the following month: 1. Start to work on the other competencies. 2. Keep on improving my interpersonal and social skills. 3. Finish the first draft of the placement report.

Appendix Placement Assignment Overview

Subject Area: Accounting and Finance Topic: Capital Structure and Profitability

Title: The Effects of Capital Structure on Company Profitability: A Case of LG Electronics Shared Service Center BV

Description of the Topic As expressed in the basic accounting equation, the asset of a company must be equal to the sum of its liabilities and its equity (Weygandt, Kimmel, & Kieso, 2008). From this equation, it can be understood that assets, which are used to carry out business activities such as production and sales, are financed through two sources: debt and equity. This means the assets of a company are claimed by either creditors or owners. However, as creditors may legally force a company to be liquidated for not paying its debt, the claims of the creditors must be paid before the owners claim. Then, why do companies still use debt when there are serious risks associated in having debts? While there are risks in using debt, it does not mean that it is unfavourable for a company to use debt. Indeed, it is possible for a company to finance its assets by only raising more equity. However, cost of debt financing is generally lower than the cost of equity financing. Based on risk and return principle, one will demand higher return when the risk associated with a certain activity is higher. With debt, companies are obliged and liable contractually to make periodic payment of interest and repay the principal amount at the maturity date. The contractual obligation and the prioritized claims over companys asset make debt holders bear less risk compare to equity holders, whose claims are residual in nature and less prioritized. Therefore, the less risky investment, i.e. debt, will require less compensation cost. At the same time, however, it does not mean that a company should go all out with its debt. Too much debt will cause many problems when a company cannot meet all the obligations. Thus, companies will try to manage the proportion of its debt and its equity. This is when the management of capital structure comes into place. Capital structure is defined as the way companies finance itself through debt, equity, and securities (Velnampy & Niresh, 2012). It can also be defined as the mix of debt and

equity used in a companys operation (Shubita & Alsawalhah, 2012). It is highly important for the managers of every company to develop and find the optimal debt to equity ratio. Optimal debt to equity ratio is the combination between debt and equity which minimizes the cost of capital for the company while maximizing the value of the company or in another word one which maximizes the profitability of company (Kebewar & Shah, 2012). Many researchers have tried to investigate the relationship between capital structure and profitability. Interestingly, there are quite a lot of disagreements regarding the results of empirical studies conducted by the previous researchers. For example, Berger and Bonaccorsi (2006) found out that lower equity capital ratio is associated with higher profitability. On the other hand, it was concluded by Velnampy and Niresh (2012) that debt is negatively correlated to the net profit. Meanwhile, Kebewar (2012) concluded that debt has no influence on profitability in either linear or non-linear relationship. In this study, the relationship between capital structure and companys profitability will be studies. The study, however, is not based on a certain industry or geographical location like how the previous researchers had conducted their studies. In this study, capital structure will be studied based on a subsidiary of a Korean electronics company located in The Netherland, LG Electronics European Shared Service Centre B.V. (LGESC).

Problem Description Capital structure is one of the many aspects that every company, including LGESC, needs to pay close attention to. Previous researches were conducted by taking into account all firms within a certain geographical location or specific industries. Baum et al. (2006), for example investigated the effects of capital structure and profitability of 70,000 firms annual characteristics from 1988 to 2000. In another occasion, Velnampy and Niresh (2012) examined the relationship between capital structure and profitability in 10 listed Srilankan banks over the period of 2002 to 2009. Therefore, it is always advisable to confirm the relationship internally within LGESC first before making any decisions based on the conclusion of previous researches. In addition, as many of the results of previous researches are conflicting against each other, it is not possible to confidently assume the relationship between capital structure to profitability in LGESC. Therefore, LGESC needs to know what the relationship within the company is. Knowing the exact relationship between LGESCs capital structure to its profitability will enable the managers to determine the debt to equity ratio that gives the lowest cost of capital and the highest companys value, i.e. profitability.

Research Question The central research questions investigated in this study is as follows: How is capital structure affecting LG Electronics European Shared Service Center (LGESC)s profitability?

The sub-research questions investigated in this study are defined as follows: 1. Does LGESCs capital structure correlates to its profitability? 2. Is LGESCs capital structure statistically significant in explaining the variation of LGESCs profitability? 3. If it is significant, what would be the direction of the relationship?

Methodology The method that I will use in my dissertation project is purely quantitative. The data that I will need are the companys monthly balance sheets and income statements items. Specifically, I need to know the companys total liabilities, total equity, total assets, and monthly net income after tax. All the data can be downloaded via LG Electronics Enterprise Portal. These data will be used to calculate Debt to Equity ratio, Return on Equity ratio, and Return on Assets ratio. The first ratio will become the independent variable in my research, while the last two ratios are the dependent variables. In this research, two sets of analysis will be performed, which are the Pearson Correlation Analysis and the regression analysis. The Pearson Correlation Analysis will be used to study the correlation between the different variables used. Meanwhile, the regression analysis will be used to see the extend of how capital structure affects LGESCs profitability. At the end of the research, depending on the result of the two analyses, conclusions will be drawn and recommendation will be given.

Conceptual Framework

Bibliography Baum, C. F., Schafer, D., & Talavera, O. (2006). The Effects of Short-Term Liabilities on Profitability: The Case of Germany. In Discussion Papers 635. Berlin: DIW Berlin. Berger, A., & Bonaccorsi di Patti E. (2006). Capital Structure and Firm Performance: A New Approach to Testing Agency Theory and and Application to the Banking Industry. Journal of Banking & Finance, 30, 1065-1102. Clayman, M. R., Fridson, M. S., & Troughton, G. H. (2008). Corporate Finance: A Practical Approach. New York: Wiley. Kebewar, M., & Shah, S. M. (2012). The Effect of Debt on Corporate Profitability: Evidence from French Service Sector. Aleppo: University of Aleppo. Lasher, W. R., Hedges, P., & Fegarty, T. J. (2008). Practical Financial Management. Scarborough: Nelson College Indigeneous. Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance, and The Theory of Investment. The American Economic Review, 48, 261-297. Shubita, M. F., & Alsawalhah, J. M. (2012). The Relationship between Capital Structure and Profitability. International Journal of Business and Social Science, 3(16), 104-112. Velnampy, T., & Niresh, A. (2012). The Relationship between Capital Structure & Profitability. Global Journal of Management and Business Research, 12(13), 66-74. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Accounting Principles. New York: Wiley. *This bibliography is not final. Additional books, journals, and articles might be added later