Four hundred thirty-four foreign companies from 51 different countries had listed shares on the New York Stock Exchange. Recent research has examined that the companies mentioned above rely entirely on debt financing. Different types of debt give rise to different types of risk. Since foreign currency debt, by definition, requires repayment in a foreign currency, it exposes firms to exchange rate fluctuations. Consequently, firms must consider the impact of currency risk while deciding on the use of foreign debt as part of their preferred funding policy. Which factor is not considered here and which values are overlooked by the finance manager while listing?
Four hundred thirty-four foreign companies from 51 different countries had listed shares on the New York Stock Exchange. Recent research has examined that the companies mentioned above rely entirely on debt financing. Different types of debt give rise to different types of risk. Since foreign currency debt, by definition, requires repayment in a foreign currency, it exposes firms to exchange rate fluctuations. Consequently, firms must consider the impact of currency risk while deciding on the use of foreign debt as part of their preferred funding policy. Which factor is not considered here and which values are overlooked by the finance manager while listing?
The capital structure of a company affects both the profitability and the financial risk. A capital structure is said to be optimal when the proportion of debt and equity is such that it increases the value of equity. As per the case, the companies rely on debt financing which means that the finance manager has overlooked the concept of 'risk consideration'. As we are aware, the use of debt increases the financial risk of the business, and a company is likely to not meet its fixed financial charges, namely interest payment, preference dividend and repayment obligations. As per the case, we are able to conclude that the manager is not prudent.
Values which are overlooked by the finance manager are:
(i) Undue exposure to risk
(ii) No concern for the stakeholders
The capital structure of a company affects both the profitability and the financial risk. A capital structure is said to be optimal when the proportion of debt and equity is such that it increases the value of equity. As per the case, the companies rely on debt financing which means that the finance manager has overlooked the concept of 'risk consideration'. As we are aware, the use of debt increases the financial risk of the business, and a company is likely to not meet its fixed financial charges, namely interest payment, preference dividend and repayment obligations. As per the case, we are able to conclude that the manager is not prudent.
Values which are overlooked by the finance manager are:
(i) Undue exposure to risk
(ii) No concern for the stakeholders
