FINANCE

Corporate Financial Management

Corporate Financial Management

Introduction

Today's globally competitive and rapidly advancing business environment demand businesses to be highly efficient and competitive in order to lead successfully in the markets. Therefore, companies need to assess each and every aspect of their business, and make them as efficient and competitive as possible. Finance is one of the most important units of any business, which provide a cost benefit to the firm that can lead it towards competitive edge and success in the market. This aspect of business is highly associated with company's sources of debt, since these sources imply better or worse future of the company. Thus, critically assessing and selecting best sources of finance provides a financial viability to businesses which helps them competing and growing successfully.

As far as sources of finance are concerned, there are mainly two types of sources available to companies for funds: debt and equity. Equity financing is offered by the stockholders, who are legal owners of the business. They buy shares that are issued by the company and thereby contribute equity capital. Net income earned by the company belongs to shareholders and therefore profits retained in the company also add to the funds of shareholders. Second option that businesses have is borrowing, i.e. company also raises finance through borrowings. The suppliers of debt are known as lenders, they do not own the business like shareholders. These lenders include banking institutions, financial institutions, and others (Pandey, 1995, p.175). Debt investors are entitled to a contractual set of cash flows i.e. interest and principle, and equity investors have a claim on the residual cash flows of the company. Furthermore, interest paid to the lenders is a tax deductible expense, but dividend paid to shareholders has to come out of a profit after tax (Chandra, 2011, p.423). Thus, company can raise funds either through debt or equity, and these two sources of finance imply different aspects.

Discussion

Company in Investigation - Procter & Gamble

The company that is selected from FTSE 100 to be investigated is Procter & Gamble (P&G). The company is one of the world's most known and successful businesses that are focused on providing consumer packaged goods. It sells products in more than 180 countries across the globe mainly through grocery stores, mass merchandisers, membership club stores, high frequency and drug stores. Recently, (June, 2012) P&G was organized into two Global Business Units (GBUs): Household Care and Beauty & Grooming. P&G's sales to Wal-Mart Stores, Inc. and the affiliates stand for around 14% of the total revenue during the most recent fiscal year (2012) (FT Markets, 2013, n.d).

Maturity Profile for the Debt of P&G

Procter & Gamble is one of the most successful and leading consumer products' companies. As far as company's debt maturity profile is concerned, it is analyzed that Procter & Gamble maintains debt levels that they consider appropriate with respect to several factors such as expectations of cash flows, requirement of cash for on-going operations, financing and investment plans like share price activities or ...