Executive Analysis Case 32
The main purpose of case 32 is to discuss the correct process for a financial analyst to assess the financial policy of a firm, and help him/her make adequate changes in a firm’s financial structure, to maximize firm value and shareholder wealth. The case offers three steps to successfully analyze a firm’s financial structure. The first step is the description, the ability to describe a firm's financial policies. The second step is diagnosis, one can decide on an adequate financial structure for firm value maximization by triangulating from benchmark perspectives. The third step is the prescription, to implement the correct financial structure for the firm based on the data in description and diagnosis steps. The case continues by further describing these three steps in more detail and elements that entail them. Such as understanding the elements of financial policy that include: mix of classes of capital, maturity structure of the firm’s capital, basis of the firm’s coupon and dividend payments, currency, exotica, external control, and distribution. It also encourages the analyst to always to focus in the perspective of the investors when deciding on the best capital structure option. This structure should include the maximizing of shareholder wealth, maximizing the value of the firm, and minimizing the firm’s WACC. In addition the case describes how to analyze financial policies from a competitive, managerial, and internal perspective. With this being said deciding of the appropriate financial structure is very complex, many variables must be taken into consideration; some of which cannot be detected by simply looking at the numbers themselves. So what is best? The case recommends to take certain elements of evaluation into consideration for a successful financial structure. These include: financial flexibility to meet unforeseen financing requirements, risk to asses predictable variability in the firm’s business,...
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