Grizzly Bear, financial manager of a US-based company, incurs substantial start-up costs. After launching his product in the market, he analysed that it is difficult to sell the product in the market, but he spent a lot in start-up expenses.

(i) Discuss why the financial plan is a failure.

(ii) Which values of a manager are displayed in this case?

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Solution

(i) The financial plan is a failure because the manager invested a large capital on start-up expenses and the product proves to be a failure as it will not bring up any profit and secondly, the manager did not analyse the market which also proved to be a drawback for him.

It is the onus of a financial manager to analyse the following points before investing:

(a) Size and composition of fixed assets

(b) Amount of long-term and short-term financing

(c) Fixing the debt-equity ratio in the capital structure

(d) Expected profit and loss

(ii) A systematic approach is required while making a financial decision. The financial manager is unable to play a leadership role in creating value through financial restructuring. The investment decision taken by the manager was not feasible or prudent.

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