Question

Analysis of three financial management questions: (i) capital budgeting, (ii) capital structure and (ii) working capital management Define the three financial management questions and justify your group’s analysis by illustrating examples: Choose one or more events described by media (CNN Business, Financial Times, Dow Jones financial news etc.) about a company who is doing one or more activities related to the three financial management questions. Analyse that event (s) applying the three financial management questions. Note: Each question is to be illustrated by at least one event.

Answer 1

Capital budgeting is a process of management of capital and allocation of capital into those products which will yield benefits to the company.This is focussed at selection of all those projects, which will be beneficial for the company in the long run, and it will help the company in maximization of its overall value.

Capital structure is optimum mix of various kinds of Financing such as debt capital or equity capital and retained earning, in order to maximize the rate of return of the company and minimise the risk associated with operational capacity.

Working Capital management is the management of total current asset and total current liabilities in which there is a high focus on maintenance of high level of working capital in order to have high liquidity, and higher cash so that short term debt repayment obligation can be met with adequate working capital.

A Company named Amazon is focusing on its capital structure by elimination of the debt capital and it is targeting to be debt free . The company is trying to eliminate the cost of debt from its books of account so that it can be debt free and the overall benefits associated with the company should accrue to the equity holdings, and it should not be having any kind of fixed cost and it has adequate cash in its book so that it can be able to expand its business and the growth strategy of this company is highly aggressive so this can lead the company into multiple benefits, when it will not have any debt.