BACKGROUND OF COMPANY
CRH was founded in 1970 following the merger of two major Irish companies, Irish Cement and Roadstone. This newlyformed business, operating in a cyclical industry, was highly exposed to a single core business in a single economy. Shortly thereafter, the Board set a clear strategy for the development of the Group: to seek new geographic platforms in its core businesses and to take advantage of complementary product opportunities in order to achieve strategic balance and to establish multiple platforms from which to deliver Performance and growth. While this strategy has evolved over the years, the broad thrust is still applicable today as the Group continues to expand from its current base in three core businesses across 27 countries. In delivering this strategy, CRH sticks to core businesses in building materials; develops regional market leadership positions; reinvests in existing assets and people; acquires well-run, value-creating businesses and seeks exposure to new development opportunities, in order to maintain and develop a balanced portfolio, while creating horizons for future growth.
According to the annual report of CRH, we can see this company have huge debt capital every year, therefore, as my person opinion, CRH should be follow the trade off theory. Under the trade off theory, high profits should mean more debt servicing capacity and more taxable income to shield and so should give a higher target debt ratio. As we can see in the appendix, in the last 3 years, their debt ratio is around 61%. It is very high. But this theory which seems to say that firms should take on as much debt as possible. It avoids extreme predictions and suggests moderate debt ratios. Also the trade off theory of capital structure can explain how companies actually behave. Like CRH, high-tech growth companies, whose assets are risky and mostly intangible.
■ CRH operates in cyclical industries which are affected by...