Question

Using a company in the Caribbean Consider what you have learntabout 1) the financing of multinational corporations, including the factors to be evaluated when identifying appropriate methods of financing, and 2) the strategies used by multinational corporations to manage their working capital and cash flow. Select a MNC and record, in your journal, your response to the following questions, in 500 words or less:Identify twomethods of financing that your selected MNC currently uses. How does this company manageits capital and cash flow? Do you think the company’s methodsof financing and of managing working capital and cash flow are appropriate, taking into consideration its organizational structure, exposure to varying tax laws and access to major multinational credit agencies?

Answer 1

Working Capital is the capital used in business, Current Assets minus the current Liabilities, Current Ratio is Current Assets divided by Current Liabilities.

A company can either have a Long Term loan (Debentures, Debt, etc) or Short Term loan (Bank Overdraft, Short Term Loans) or mix of both.

It is always good for a company to have both Short Term and Long Term loans.

The interest Rates are usually higher for Short Term loans compared with the Long Term loans.

If a Company chooses to opt for Long Term Loan compared with Short Term then the Debt Equity Ratio would be lower but the Current Ratio would be higher.

If a Company chooses to opt for Short Term Loan compared with Long Term then the Debt Equity Ratio would be higher but the Current Ratio would be lower.

When an Organization opts for Short Term loan it impacts the Operating Activities in the Cashflow, when an organization opts for Long Term loans it impacts the Financing Activities in the cashflow.

Interest would always be in the Operating Activities of the cashflow.