When there is high gearing, the profits available to shareholders are reduced due to interest paid on loans. The costs of the business can increase as well if the interest rates rise. However, high gearing is not necessarily bad. It can signify that the firm is seeking expansion plans, and have taken the chance to capitalise by borrowing at low rates. As for low gearing, more profits are distributed to shareholders due to lower interest bills.
Kano Fashions: A) 1) Restructuring is a process in which may result in transfer of ownership or change the scope of business for the betterment of the company. Restructuring is based on a serious decision that whether to get rid of financial debts, reduction of services or selling a part of business to investors. To implement this decision either the new CEO or the company will make that decision. The objective of restructuring is to ensure that the entity will become more organized and effective. Companies which are financially unstable usually use corporate reconstructions, which facilitates them to remain in business rather than to go for liquidation.
As the capital structure changes, there is a definite effect on the balance sheet of the company. There is financial flexibility by using stock. Payment solely by stock might reduce the profitability ratio of the company and if it is by cash, the company will show higher liquidity ratio. Not all firms have liquid cash to complete the transaction so they deal by involving both cash and stock as the risk will be divided and hence it is the most attractive method of financing the
Employers can write off administrator costs as a routine business cost. This calls for review by the business to be sure they can cover high reimbursement difference from the plan immediately. The association has increased its underline area. These accounts helps to keep existing staff in the company favor and attract top talent later. .
Maximization of profit used to be the main aim of a business and financial management till the concept of wealth maximization came into being. Wealth Maximization is a superior goal compared to profit maximization as it takes broader arena into consideration. Wealth or Value of a business is defined as the market price of the capital invested by shareholders. Both Profit Maximization and Wealth Maximization have their challenges: Profit maximization is an obvious goal of management, but it does not necessarily imply that short-term profit increases will produce long-term sustainable gains. For example, a reduction in product quality that lowers production costs will produce a quick increase in profit, but lowered quality standards can also tarnish a company 's reputation and provide the competition with an advantage.
Institution’s generate trust from the profits created by lending funds at a higher rate than the return paid to depositors. Given that ultimate lenders are looking for low risk and security, trust and confidence in the bank is extremely important. In addition, financial Institution allow depositors access to funds under agreed terms, with a fixed rate of return and low costs, in the main. This security allows depositors to plan for the future with the knowledge of what to expect from their investment. Another benefit to the ultimate lender of financial intermediation is that they do not have to take on the risk of the financial concept known as Asymmetric Information.
So bondholders may try to put restrictions on the dividend payouts through bond indenture Furthermore, Alli et al. (1993) explained that as the number of stockholders would increase, the agency problem would also increase and the need for monitoring the actions of the management would also increase. If dividends can mitigate this problem, we can expect a positive relationship between number of common stockholders and dividend payout ratio. Large sized firms with stable earnings and profitability record will have easy access to outside capital. Dickens, Casey, and Newman (2002) studied the impact of ownership
How to diversify a portfolio While portfolio diversification may seem like a daunting task, especially when investors do not have the time, skill, or motivation to research individual stocks or determine whether a company's bonds are worth purchasing. But, with ETFs and mutual funds, investors have terrific options for quick and safe diversification. Plus, with the proper diversification, investors are more likely to outperform the immense majority of portfolios that are actively
retail, such find debt financing more suitable to start up the business. This is because new traditional businesses do not have a lot of funds to work on with and they are a less risky deal as compared innovative sectors so debt financing may be proffered by them. He further adds that business with new ideas and innovation e.g. those of technology sectors that introduce products not currently available in the market would prefer equity financing because debt would not be easy to gain due to high level of risk attached of whether it will be success or not. But the investors may be interest to fund such projects as high risk may lead to even higher
Fixed percentage ratio is when the company pays out a fixed percentage of annual profits as dividends. The advantage of this policy from the company’s point of view is that it is relatively easy to operate and also this sends a clear signal to investors about the level of the company’s performance. The disadvantage however for the company is that it imposes a constraint on the amount of funds it is able to retain for reinvestment. Next just like the name itself zero dividend policy is when a company decides to pay no dividend at all. Such a policy is easy to operate and will not incur the administration costs associated with paying dividends.