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Suzuki Motors Financial Analysis

Essay by   •  August 19, 2011  •  Case Study  •  382 Words (2 Pages)  •  1,817 Views

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In my conclusion I am adding the measures to be taken by Tata Motors to improve its long term financial management as quoted by directive taken by Suzuki Motors to its company

* The conservation of cash to the maximum extent possible

* Draw down all loans/ lines of credits from banks and institutions to the maximum extent possible

* Expeditious finalize pending loan and funding agreements, even if they involve accepting higher interest rates.

The Company should also take some major steps to:

* Improve operational efficiency

* Aggressively implement restructuring of internal cost frame work

* Drastically reduce operating expenditure

* Defer non essential capital expenditure and capacity expansion

* Put on hold any plans for acquisitions unless considered strategically critical.

With these recommendations it is expected that the Company would be more efficiently long term financially managed and the company would tide over the present recessionary trends in the Automobile Market.

A company increases its debits by issuing new equities to finance new projects because if it is not done the same way then the new Investors will make most of the profit which is "the net present value (NPV)" of that particular project which will cause loss to the present share holders. To avoid this, most of the firms tend to finance their new projects using a security that is not undervalued in the market, which can be internal funds or some other less dangerous debt securities. Therefore, this is what affects the choice between internal and external financing. (European Journal of Economics)

"The M&M theory is a theory of capital structure which explains that a company's market price is definite by its earning power and by the basic risk of its resources, the three most important ways of funding, they are issuing shares, borrowing and retaining profits

"As opposed to dispersing them to shareholders in dividends" (Modigliani-Miller Theorem - M&M)

This theory also says that if there are no taxes, bankruptcy costs, and asymmetric information, in an efficient market then a company's value becomes solid for finance by its sources. It makes no difference how the company's funds are increased either by issuing stock or by selling debt and neither matters the dividend policy of the company". (Modigliani-Miller Theorem - M&M).



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