Reference no: EM132188350
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This course taught me that achieving the goals of corporate finance requires that any corporate investment be financed appropriately. Management must therefore identify the "optimal mix" of financing, the capital structure that results in maximum value. The sources of financing will, generically, comprise some combination of debt and equity.
On the other hand, financing a project through debt results in a liability that must be serviced and hence there are cash flow implications regardless of the project's success. Certain assignments showed me that the equity financing is less risky in the sense of cash flow commitments, but results in a dilution of ownership and earnings. The cost of equity is also typically higher than the cost of debt, and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk (Gitman, Lawrence 2003).
If were to be part of the management making managerial decision, I would attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows. Topics like working capital management entails short term decision (Eliyahu M, 1986).
These decisions are therefore not taken on the same basis as Capital Investment rather they will be based on cash flows and / or profitability (Cox, Jeff, 2006).
As exposed in the course, I can see that financial managers measure the development of the company, they determine the financial consequences, the tendencies and recommend on how to use the assets of the organization for the wellbeing and survival of the business in the long run.
In today's world it is imperative to have the means and tools needed to be competitive; there must be a vision that there are no borders in order to make a business successful and to guarantee its survival in the long run. And the big one was that the decision making based on different scenarios must be done in order to assure the right use of the assets on the company (Kermit D. Larson 2007).
References:
1. Gitman, Lawrence (2003), Principles of Managerial Finance, 10th edition, Addison-Wesley Publishing.
2. Goldratt, Eliyahu M., & Cox, Jeff, (2006) The Goal, Croton-on Hudson, New York, North River Press.
3. Pyle, William W., and Kermit D. Larson (2007). Fundamental Accounting Principles. Homewood, Illinois: Richard D. Irwin.