How to judge the company’s business strategy through cash flow statement and cap
ID: 2596137 • Letter: H
Question
How to judge the company’s business strategy through cash flow statement and capital structure?(open question ,The more you write, the better)How to judge the company’s business strategy through cash flow statement and capital structure?(open question ,The more you write, the better)
How to judge the company’s business strategy through cash flow statement and capital structure?(open question ,The more you write, the better)
How to judge the company’s business strategy through cash flow statement and capital structure?(open question ,The more you write, the better)
Explanation / Answer
Q1: How to judge the company’s business strategy through cash flow statement?
Solution: The companies strategy can be easily determined through cash flow statements. Under cash flow statements, there are three kinds of activities like operating activities, investment activities, and financial activities.
Through investment activities, we can determine the actual investment made by the company in new assets and avenues of investments for expansion purpose.
Q2: How to judge the company’s business strategy through the capital structure?
Solution: Wealth maximization and tax savings is the prime of every company. Through capital structure, the company can frame strategy regarding debt equity composition in the total capitalization of the company. The company can achieve wealth maximization by employing the cheapest source of finance i.e. debt in the capital structure of the company as well as tax saving tool, which will reduce the overall cost of capital and increase the market valuation.
Example: Even a company like Apple who has huge reserves, still employ debt in the capital structure to decrease the overall cost of capital and enjoy tax savings as well as to increase market valuation.
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