What is financial flexibility in accounting?
The term financial flexibility can be defined as “the ability of a firm to access and restructure its financing at a low cost” , and represents “the ability of a firm to respond effectively to unanticipated shocks to its cash flows or its investment opportunities” .
What is capital structure in financial accounting?
Capital structure refers to the specific mix of debt and equity used to finance a company’s assets and operations. Capital structure is also the result of such factors as company size and maturity, which influence the financing options a company may have available.
What is multinational capital structure?
In case of an MNC, capital structure decision is concerned with determining the mix of debt and equity for the parent entity and for all consolidated and unconsolidated subsidiaries. MNCs have comparatively greater flexibility in choosing the markets and currencies in which it garnishes funds.
What is flexibility in capital structure?
Survey studies have shown that a CFO’s top priority when determining the capital structure is maintaining financial flexibility – the firm’s ability to borrow funds to take advantage of new investment opportunities or sustain ongoing projects when they need to.
How is financial flexibility important for the company?
The financial flexibility is the most important part of determination of structure of the company capital and can be applied to maintain the debt capacity for the purpose of future development of the company or minimizing the debts to avoid the financial distress in the economic recession.
What is financial flexibility and how can a company measure financial flexibility?
Financial flexibility is the ability of a firm to adapt to change. The current ratio and the acid test ratio can be used to assess short-term financial flexibility. To assess long-term financial flexibility, financial statement users use the Debt Ratio to evaluate the firm’s debt levels.
Why is multinational capital structure important?
Multinational corporations leverage their financial position and access to global markets to raise capital in a cost-effective and efficient manner. The capital structure multinationals use directly impacts profitability, growth and sustainability.
What are the factors affecting capital structure?
Factors Affecting Capital Structure – Profitability, Cost of Capital, Nature of Business of Firm, Cash Flows, Control of Firm, Capital Market Conditions and a Few Others.
Why is financial flexibility important?
Why do you need flexibility in capital structure?
This is where the role of flexible capital becomes essential. As the name suggests, flexible capital is a customized source of funding which helps companies achieve their fund-raising objectives by bridging the gap between traditional debt and equity, thus putting minimal strain on their cash flows.