FIN 11/14/22 DISCUSSION
In the Concepts in Action video, you watched this week, the speaker mentioned several challenges which led to his company’s capital structure policy being different from what’s discussed in traditional textbooks. Which of these challenges do you think is the strongest reason why their capital structure policy is different and why do you think so?
Determining the optimal capital structure requires considering a variety of factors, such as the degree to which a company may leverage its assets while also remaining profitable. For a firm to thrive, it must generate enough income to meet its expenses while still having enough left over to repay investors and expand. The earnings of a firm can be altered, but the cash flow shows how healthy the company really is. Long-term loans, bonds, and retained earnings are just a few of the financial instruments that make up the company’s capital structure. These resources help the business raise money from private individuals and institutions to support its operations. There are many factors to consider when determining a company’s financing or capital structure, including the source and percentage of long-term financing that is raised from these sources. It’s all about working out how to pay for the chosen assets or project. Managing your company’s cash flow means keeping track of the money you receive and comparing it to the money you spend on things like bills, salaries, and property. When done correctly, it gives you a clear picture of costs vs. revenues and assures you that you have the funds necessary to pay your bills and make a profit. The goals of cash management are simple: to maximize liquidity, control cash flows, and maximize the value of money while minimizing the cost of financing. Various levels of long-term planning are required by the tactics employed to achieve these objectives. When you pay with cash, businesses know you’ve completed your transaction, so there’s no concern that your payment will be lost (if they deposit the cash). However, it’s a long shot that the money is fake. Business owners have immediate access to cash, which they can spend or deposit as they see fit. The capital structure can be influenced by the desires of prospective investors. As a result, a wide range of securities are issued to meet the needs of potential investors. When companies issue equity shares, they’re looking for people who are ready to take on that risk and invest in the business.