Business Financing and the Capital Structure

Business Financing and the Capital Structure Research Paper example
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Finance & Accounting
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Business Financing and the Capital Structure Question 1 Financial planning process to estimate asset investment requirements for a corporation Based on simplicity, many corporations perform projected cash flows to evaluate the requirements of asset investment…

Introduction

Concept of working capital management Working capital management is fundamentally described as a managerial technique to preserve the financial health of a company in repaying its short-term debts and simultaneously, sufficing the need for short-term operating expenses. Advantages of working capital management can be viewed in terms of increased earnings of a company. Contradictorily, the conceptual framework is often criticised to offer only short-term financial planning assistances to the users. Notably, working-capital ratio and inventory-turnover ratio can be regarded as the two vital instruments to assess the viability of working capital management strategies applied by a company (Rehn, 2012). Financial instruments that are used as marketable securities to park excess cash Marketable securities are mostly favored by investors owing to their high liquidity benefits. In this regard, Treasury bills, commercial papers, bankers’ acceptances and other forms of government bonds as well as common stocks can be noted as the financial instruments used as marketable securities by investors to park excess cash (Chudson, 1945). Question 2 Selection of equities and debts to raise business capital depend on diverse factors, which mainly include the micro-economic performance of the economy and the liquidity position along with the risk taking ability of the company. ...
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