Interrelationships among Factors Affecting Structure of Capital

Document Type:Essay

Subject Area:Finance

Document 1

This paper will discuss the interrelationships of such factors which affect the structure of finance and performance and how they significantly affect the general organization as a whole. The main concepts which will be discussed in this paper include corporate governance, strategy as well as management of risk. Other factors to be addressed are as follows: policies on dividends, capital, and management of cash, mergers, financial distress and acquisitions. Corporate Governance This term can be described as a framework within which the board executes its mandates to maintain its relationship with all other stakeholders of the company. The framework includes rules as well as practices through which the board ensures that the matters of the company have been done ion a transparent, accountable and fair manner.

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It ensures that the financial resources of the company are not strained. Members of the board get the highest compensation in an organization, and thus the company should ensure that the number or the size of the board is not large than required but it meets the statutory requirement to enable the board to make viable decisions for the company progress. A high number of members may prove to be a burden to the organization as the packages and compensation are very high. Maximization of the wealth of the investors should be a goal which should not be left behind, and therefore the board is essential to realizing this goal. Decisions of the board are the decisions of the organization, and the composition of the board should consist of highly qualified personnel.

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Identifying a risk involves determining any possible risk that could affect an organization while evaluation is done to assess the impact it could have in case it happens (Carvalho & Junior, 2013). On the other hand, in prioritizing the risks, they are arranged in order with the one with the highest risk of occurring taking the first or the highest rank (Carvalho & Junior, 2013). The final step in managing risks is coming up with necessary strategies which are then put in place to ensure readiness in an event such risks occur. An occurrence of some risks may lead to a total disclosure of the business, and thus such strategies are essential. In the case of Asahi India Glass Company, it had opted for debt or borrowings to finance its operations as opposed to equity.

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Detailed and extensive research is necessary when choosing a particular strategy such strategies have impacts on the organization which sometimes may necessitate restructuring. Proper strategy boosts the performance of the specific business and needs stakeholder consultation otherwise it will lead to undesirable effects. In J. C. Penny Company Case, the company employed different executives who performed turnarounds to save the company. Maintaining low levels of cash, on the other hand, may also not be desirable as the company may be unable to pay its short-term bills and meet the unexpected expenses. Mergers and Acquisitions Merging refers to combining of two or more firms which produce similar products in an attempt to increase its competitiveness. An acquisition, on the other hand, refers to taking over and assuming all the other firm’s operations.

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Mergers and acquisitions are a way to reduce risks and increase the performance of a company. When a firms come together, they operate as a single firm as opposed to two. For example in Tesla Case, when an announcement was made that the company intended to acquire SolarCity, the shares experienced a 10 percent decrease while those of the SolarCity experienced a 15 percent increase. This shows how acquisitions can impact the stock market of both firms. Dividend Policy Dividends can be defined as the distributions made from the profits of the company to the shareholders. Profits earned by the company can be used to finance the operations of the business, and this provides the cheapest option for the firm when compared to debt and other forms of finance.

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