- Determine the risks associated with financial leverage.
- Compare the capital structures of business organizations.
- Calculate cash conversion cycle (CCC) and assess how it relates to net working capital.
- Analyze the viability of a company’s present and future financing plans.
Topic 7 DQ 1: Assessment Description
Research publicly traded companies and select two companies in different sectors. Compare the capital structure for each and explain your conclusions on the similarities and differences. What support can you provide for why each company adheres to their chosen structuring mechanisms?
Topic 7 DQ 2: Assessment Description
Why is understanding the relationship between the cash conversion cycle (CCC) and net working capital important to the contemporary business executive? Explain ways in which executive short-term and long-term financial decisions regarding the CCC and net working capital can affect a company both adversely and beneficially. Support your response with a specific example from the business world.
CLC – Case Study Component 4: Assessment Short-Term And Long-Term Financial Decisions
This is a Collaborative Learning Community (CLC) assignment. The purpose of this assignment is to analyze a company’s future financial health. Get legit paper writing services now! This assignment is the fourth component in your group’s comprehensive financial analysis project. The steps referenced here follow the nine-step assessment process detailed in Assessing a Company’s Future Financial Health.
Component 4 – Part 1
For this part of the assignment, your group will write a 750-word analysis of your chosen company based on the final three steps of the nine-step assessment process.
Step 7: Viability of the 3-5-Year Plan (this is my section. Remember it’s a group continuation on tesla). This can be sent on Sunday half page
Step 8: Stress Test Under Scenarios of Adversity (Also, I have to do one scenario here can be a page or half)
Step 9: Current Financing Plan
Prepare this part of the assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required. You are required to submit this assignment to LopesWrite. A link to the LopesWrite technical support articles is located in Class Resources if you need assistance.
Component 4 – Part 2
For this part of the assignment, your group will create a 5-10 slide PowerPoint presentation summarizing the results from Component 4 – Part 1. While APA style is not required for the body of this part of the assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center. You are not required to submit this part of the assignment to LopesWrite.
You will be required to resubmit this assignment, revised to incorporate all instructor feedback, along with the other three component assignments as one comprehensive submission in Topic 8. To save time later in the course, consider addressing any feedback soon after this assignment has been graded and returned to you. This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
Read the “Cash Management: Strategies for Improving Cash Flow” section of “Chapter 7 – Cash and Working Capital Management,” by Bamber and Parry, from the online eBook, Accounting and Finance for Managers: A short-term and long-term financial Decision-Making Approach (2018), available through Books 24×7 in the GCU Library.
Read “Risk: Leverage It. Control It. Win,” by McNally, from Financial Executive (2015).
Read “The Two Faces of Liquidity,” by Rajan, from NBER Reporter (2018).
Read Chapters 13-16 in Principles of Managerial Finance Plus MyLab Finance With Pearson
Read “Dividend Policy,” by Erbschloe, from Salem Press Encyclopedia (2019).
Do the Right Thing! Developing Ethical Behavior in Financial Institutions
Read “Do the Right Thing! Developing Ethical Behavior in Financial Institutions,” by Fichter, from Journal of Business E
Cash Conversion Cycle (CCC) Vs. Net Working Capital
The overall role of a contemporary executive involves planning the growth and overall future of a company. This consists in putting in place strategies and tactics for the general operational legitimacy of the company. This would facilitate the maintenance and improvement of the organisational financial standing and thus the company’s overall competitive advantage. Working capital is the difference between the value of the company’s short-term assets and liabilities.
It, therefore, shows the company’s ability to meet its short-term obligations. This facilitates the effective day-to-day running of the business. The cash conversion cycle (CCC), on the other hand, involves the overall operational contribution of a transaction in the generation of the company revenue (Chang, 2018). This requires the review of the potential clients’ credit worthiness and overall financial standing. This helps reduce the risk of default after selling commodities on credit. It is therefore evident that CCC is more comprehensive than the networking capital.
While the networking capital includes all the current assets, the CCC focuses on cash as the only current asset that can be used to meet short-term obligations. However, the two concepts play a critical role in the company’s overall operational wellbeing of the company. This facilitates the overall long-term competitiveness of the company by accessing more creditworthy potential customers.
Furthermore, with CCC, it is possible to determine the comprehensive ability of the company to meet its short-term obligations. This facilitates the effective running of the company, based on the fact that it can save the possible company losses due to non-creditworthy customers (Nwude et al., 2018).
Therefore with the understanding of the cash conversion cycle and networking capital, the company executive would be able to guarantee both the long and short-run success of the company. The company executive ought to consider that the current assets are scarce and should be allocated optimally, just as any resource.
Chang, C. C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance, 56, 568-581.
Nwude, E. C., Agbo, E. I., & Christian Ibe-Lamberts, C. I. L. (2018). Effect of cash conversion cycle on the profitability of public listed insurance companies. International Journal of Economics and Financial Issues, 8(1), 111-117.
Tesla vs Space X Capital Structure
Tesla has one of the most exciting capital structures, involving the company’s high utilization of debt in financing the rapid expansion. The company has relied on both private and public debt. For example, after the 2008-2009 financial recession, the company received a loan in the bailout. Right before then, the company was at the brink of bankruptcy even though the company’s competitors like Ford never had good bankrupt for two decades.
The company has, however, paid off the debt since. The company has continued to increase the debt burden, which has been alarming to the company investors. By the end of 2018, the company’s debt to equity ratio is at 1.63 per cent, something significantly lower than the average figure for the automotive industry (Zhao, 2021). This indicates that the company is relatively less risky because there is a relatively healthy balance between debt and equity as sources of finance.
While Tesla is a publicly-traded company, Space X is a privately held company that has been backed by venture capitalism. Despite the fact that the company has about ten thousand. Even though dominantly owned by the founder Elon Musk, who owns 47.4 percent and a 78.3 per cent voting control, the company’s gas relied on debt to finance some of its operations over the year.
While Tesla’s investors are likely to recoup their investments sooner, the Space X investors commit to a more long-term commitment despite which the company is more valuable and attractive as an investment opportunity (Gornall & Strebulaev, 2020). However, the two companies have used debt as a significant source of financing for all their activities. However, Tesla is about eight times as big as Space X in market capital.
Gornall, W., & Strebulaev, I. A. (2020). Squaring venture capital valuations with reality. Journal of Financial Economics, 135(1), 120-143.
Zhao, L. (2021). Capital Structure of New Energy Automobile Industry. In Proceedings of the 4th International Conference on Economic Management and Green Development (pp. 236-246). Springer, Singapore.