Financial Overview of Samsung and Intel Capital Structure

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As per the table above, it is clear that in 1997, the capital structure of Samsung Electronics was highly leveraged. Samsung's capital structure consisted of 85% debt and 15% equity, while Intel had 33% debt and 67% equity as per the financial data Year End 1997. The healthy blend of 33% debt and 67% equity for Intel, a chip manufacturing firm based in the US, indicates that the company is efficiently managing its investments by optimally utilizing debt to eventually result in an increase in value for the shareholders.

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Samsung Electronics had 70% of its USD 9 billion debt in the form of foreign currency loans, which is a major risk element considering the exchange rate hit the company faced. This huge dependence on foreign debt explains the inherent discrepancy that existed because Samsung was part of a Korean Chaebol. Like most Korean Chaebols, Samsung had the strategy of increasing size and ignoring profitability. Access to credit was via informal credit markets and the support of the Government. Also, because most of the debt was issued via a cross-debt guarantee, this caused a spiral effect when a shock hit.

Furthermore, Samsung Electronics invested in an unrelated industry, namely Samsung Motors, acquiring 21.1% of the stake. Such an unrelated investment is not a practice among comparable firms like Intel. As per the table, Samsung has low equity, which implies low shareholder commitment to the business via the channeling of their own funds. In contrast, Intel has high equity amounts, which back up the commitment of the company stakeholders to the business.

Overall, the major difference between the two companies, as per the table, is that Samsung has raised a lot of capital via debt, partly due to weak government structures and poor corporate governance.