Question

Why is it important for companies to use financial investments in their growth strategy? What are the two types of financial investments that companies use in growth strategies? How do they affect the company’s bottom line?

Appraise the advantages and disadvantages of the three types of financing policies that companies use for growth strategies. How do they affect the company’s balance sheet

Answer 1

It is very important for the companies to define their growth strategy and how they will achieve their growth goals that is by using external financing like bonds and stocks or through internal funding.Mostly the companies grow using external funds by raising money through debt offering or stock offering.

The two main type of financial investments that a company use are:

1) Bonds: It reduces their bottom line due to interest payments and debt repayments.

2) Stocks: It doesn't affect the bottom line directly.

Three types of financing policies are:

1) through internal funding

Advantage: there is no external fundin required which means no debt repayment burden on the company.

Diadvantage: Can seriously reduce the company's cash position and their current ratios.

2) Debt offering:

Advantages: No dilution of the ownership of the company.

Disadvantage: regular interest payments which reduces the bottom line.

3) Stock offering:

Advantages:No regular payments to the stock holders.

disadvantages: dilution of ownership stake in the company.