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    Unprofitable (Negative) Financial Leverage - This Type of Leverage Is Opposed To The

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    Yashvi Shah
    The document discusses several financial strategies for a company, including: 1) Converting short-term loans to long-term loans to spread out interest payments and improve cash flow. 2) Improving working capital requirements by optimizing accounts receivable, inventory turns, costs, and capital utilization. 3) Optimizing manufacturing facilities by selling unused equipment, outsourcing where possible, and improving capacity utilization.

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    Unprofitable (Negative) Financial Leverage - This Type of Leverage Is Opposed To The

    Uploaded by

    Yashvi Shah
    85 views2 pages
    The document discusses several financial strategies for a company, including: 1) Converting short-term loans to long-term loans to spread out interest payments and improve cash flow. 2) Improving working capital requirements by optimizing accounts receivable, inventory turns, costs, and capital utilization. 3) Optimizing manufacturing facilities by selling unused equipment, outsourcing where possible, and improving capacity utilization.

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    The document discusses several financial strategies for a company, including: 1) Converting short-term loans to long-term loans to spread out interest payments and improve cash flow. 2) Improving working capital requirements by optimizing accounts receivable, inventory turns, costs, and capital utilization. 3) Optimizing manufacturing facilities by selling unused equipment, outsourcing where possible, and improving capacity utilization.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    85 views2 pages

    Unprofitable (Negative) Financial Leverage - This Type of Leverage Is Opposed To The

    Uploaded by

    Yashvi Shah
    The document discusses several financial strategies for a company, including: 1) Converting short-term loans to long-term loans to spread out interest payments and improve cash flow. 2) Improving working capital requirements by optimizing accounts receivable, inventory turns, costs, and capital utilization. 3) Optimizing manufacturing facilities by selling unused equipment, outsourcing where possible, and improving capacity utilization.

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    © All Rights Reserved
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     Unprofitable (negative) financial leverage - this type of leverage is opposed to the


    first one. The funds costs are larger than earnings of the company. Negative financial
    leverage can be called unfavourable.

    A negative value means that a business is operating under its break-even point, i.e., it has


    an operating loss. A positive ratio indicates that the level of business activity exceeds the
    break-even point.

     Debt Restructuring - Conversion of Short Term Loans to Long Term Loans


    After the successful rights issue of the company it is evident that the shareholders are still
    confident about the company. So now at present the company should try to convert its short
    term debts to long term debts to spread out its interest payment which in turn will improve its
    cash flows without altering its overall loan obligations. The company has said to have reduced its
    long term borrowings by the equity infusion through rights issue. The company should try to
    now improve its credit ratings by obligating to immediate interest payments and hence should
    come up with an FPO or OFS to get more capital through equity.

     Improve Working Capital Requirements


    They need to maximize their asset utilization. Improve its annual receivables turnover and
    industry turns. Optimize its operating cost and make efficient use of the capital in their hands.

     Optimize Manufacturing facilities


    Effectively use all their machinery and equipment. They can decide to sell off the old machinery
    which may not be now working at optimum levels and actually have higher cost to run and
    maintain and resort to a certain level of outsourcing. In this way they can gain some capital and
    also reduce its depreciation expenses. It has been mentioned in the case that the capacity
    utilization of architectural and mirror segment was just 17% and 16% respectively. Immediate
    changes should be imposed to resolve the utilization shortage in these segments. They can also
    temporarily shut down its operations in segments that have a beaten down demand in the
    market and focus on more efficiently manufacturing products like float glass which contributes
    to a major chunk of its revenues.
     Hedge Foreign Exchange risk
    It has been mentioned in the case that the company also suffered a lot due to the weakening of
    the rupee as compared to other currencies. To further protect the company from such a risk
    they should plan to hedge their foreign exchange risks by resorting to currency swaps and other
    such instruments.

     Focus more on Exports


    They can leverage the reputation and market presence of their promoter company and
    maximize their exports. This not only gives them a chance to raise their revenues but also solves
    their problem of currency rate fluctuations and helps them to cope up with their borrowings
    which are in foreign currencies.

     Take advantage of diversification and vast product portfolio


    They need to make use of the vast basket of products they manufacture to foray into other
    sectors like pharmaceuticals and electrical equipment to boost its sales. The company has made
    its presence majorly in passenger cars segment. Within the auto segment it should plan to make
    use of its synergies and make products for buses and heavy vehicle too.

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