Issues in corporate finance Assignment Example | Topics and Well Written Essays - 2000 words

Issues in corporate finance - Assignment Example Most important, companies have to understand the value of trading-off aspects of capital because such practise results to better performance. The trade-off theory of capital structure maintains the positive relationship between earnings and leverage. Empirical evidences, however, argue that such observation is fallible (Sarkar and Zapatero, 2003). Despite the contradicting outcomes, trade-off has considered as valuable mechanism in gauging corporate revenues. In most instances, the trade-off theory has consistently predicted information related to debt structure. The theory suggests that weak firms are more inclined to finance exclusively with bank debts. Apparently, weak firms tend to ignore other debt sources in particular public debts. Another important idea posited by the theory is that the optimal debt structure seen among strong firms pertains to combinations of bank and market debt. Basically, strong firms have become adept in successfully managing both bank and market debts. It has to be noted that the nature of both debts are differently perceived. Strong firms have the capacity to acquire different forms of debt instruments because of their financial scope. In uncertain markets, the strategy of using varied debt mechanisms allow strong firms to be more flexible in handling risks. According to Brealey and Meyers (2000), the trade-off theory pu... Furthermore, critics claim that the theory is ill-equipped to justify relevant practises. The concept developed by Modigliani and Miller (1958) revolves on the market imperfections that eventually affect capital structures. Indeed, market imperfections occur in several forms. The most prominent observed among firms include taxes, market distresses, and agency costs. For most firms, the challenge is to create an optimal capital structure when these market imperfections emerge. The theory assumes that after a certain firm establishes the optimal combination of financial resources all succeeding financing is raised in the same proportion of debt and equity financing. This, however, is expected to vary in the method of reporting and practising. Among publicly trading companies, Houston and James (1996) observed that there is an insignificant use of market debt. The percentage of non-market debt among listed companies is greater in value as evident in the majority of firms preferring non-market debt. In addition, the listed firms that use market debts show that non-market debts still occupy the most shares on the overall debt. Johnson (1997) pointed out that the long-term debt structure suggests better use of market debts. Among the users of market debt, more than half of the total long-term debt is considered as market issued. Trade-off has usually been used to determine financing decisions. Traditionally, firms either maintain a target capital structure or follow the hierarchy of financing. Pinegar and Wilbritch (1989) conducted a survey on firms belonging to the Fortune 500 on their financing preference. Based on the results, majority of the firms listed in Fortune 500 have been using target capital structure to

Business Report Essay Example | Topics and Well Written Essays - 1250 words

Business Report - Essay Example The organization, through the new initiative, has a lot of potential and could very well be on its way to cashing in on the demand of the market and could ideally lead its industry in no time. Unfortunately, Tedallal is still experiencing difficulty primarily because its strategy is not aligned with the organizational objectives. This issue has been identified using different assessment models such as Hayes & Weelright's four-stage model, service positioning matrix (SPM), as well as concepts such as ServQual, the service profit chain, service blueprinting and the lean service concept. These frameworks revealed that there are several mismatches and incoherent elements in Tedallal’s overall business approach that compromise several features of its new operational model. This came about through several factors, including a comprehensive offering of customer values that taxed the organizational capability and resources; half-baked strategy that failed to address the achievement an d maintenance of quality in products and services; and, the failure to meet market demands. These variables, collectively, put the company in a more dangerous ground, that when left unaddressed could ultimately lead the organization to its eventual demise. The key issues identified in this report that are needed to be addressed are as follows: 1. Although the organization adopts the four essential competitive priorities in its strategy as a service company, it fails to implement them each in their own respective areas as well as in a collective model that could coherently achieve the organizational objectives; 2. Tedallal lacks the organizational culture that could enable the company to attain its objective of putting emphasis on people and service. This aspect is particularly important, since Tedallal’s new strategy requires a high degree of organizational change that can only be achieved by changing people, perspectives and attitudes. 3. The strategy to utilize low-cost res ources and failure to invest on its people took its toll on the organization's ability to meet the demands and expectations of the customers, respond to the changes and requirements of the complex products and values it started to offer after the strategy overhaul. As this report would establish, there is a need for restraint and sober strategy building in regards to how competitive advantage is to be approached and achieved. What this means is that decision-makers within the company should decide which aspect they want to focus on, then perfect it, excel on it, and gradually build a lasting and memorable relationship with its customers. This should lead Tedellal to modify its current strategy from the existing knee-jerk or reactive approach into a long-term, coherent and unique model tailored according to its core objectives, organizational strengths and capabilities. This report has outlined several models that could guide Tedallal in effectively aligning strategy and objectives, in every step and in every aspect – from the evaluation up to the measurement of strategy according to the corporate objectives. These information are contained in a logically structured discourse of three important aspects of the organization and its strategy: Operations strategy, activity and performance; Service delivery