Question

Why do finance managers need to understand different existing options in merger deals and financial reporting of the mergers? What implications do these concepts have for corporate finance?

Answer 1

It is imperative for finance managers to understand different existing options in merger deals and financial reporting of the mergers. This is because several companies, in their quest for growth, undertake inorganic route of expansion. Companies grow and expand mainly through two means – organic growth an inorganic growth. Organic growth entails expansion through green-field investments. On the other hand inorganic growth happens through brown-field expansion and through means like mergers and acquisitions etc.

A financial manager has to develop strategies and plans for the long-term financial goals of their organization. A part of this strategy will be mergers and acquisitions. As such it becomes imperative for finance managers to understand different existing options in merger deals and financial reporting of the mergers. This will enable them to develop tangible and systematic strategies for the long-term financial goals of their organization and monitor financial details of different deals and impact of business acquisitions and mergers.

These concepts will have long term implications for corporate finance. This is because the primary goal of corporate finance is to maximize the shareholder’s value and increase it on a consistent basis. Understanding of these concepts by finance managers and then application of these concepts will enable managers to take optimal financial decisions. It will ensure that both short term as well as long term financial planning leads to maximization of shareholder value and are value accretive in nature. It will also lead to better management of financial risks.