The paper 'Boral Limited Financial Policy Decision Making" is a good example of a finance and accounting case study. The working capital policy denotes the level of the venture in the current assets for achieving directed sales in a company. The policy can either be relaxed, restricted or moderate. Regarding the current assets, the relaxed policy has higher levels compared to the limited system. The informal system has a current asset level that lies between relaxed and restricted policies. Therefore, working capital management makes resolutions contingent on the degree of the current assets and the resources to fund the current assets.
For us to determine the policy that Boral Limited uses, we focus on the definitions of the three systems. The restricted or aggressive policy allows the approximation of the current assets for achieving targeted returns in a belligerent manner. The system fails to consider many possibilities and provisions of unanticipated events. Therefore, the organization will forcefully implement the policies allowing no room for deviance. The level of returns matches the lowest current asset. On the other hand, a company that adopts a relaxed policy considers the uncertain happenings before approximating the current assets to achieve the projected revenue.
The system allows a smooth running of the business activities, but the returns on the investment are lower because of the high interests attracted by the higher investments in the current assets. The moderate policy balances between the former systems. Therefore, to determine the type of system used by Boral Limited, we focus on the current assets and the revenue of the company. From the financial report for FY2015, the total sales exceeded the current assets.
The total amounts of the current assets were $1,741,300,000 while the total sales were $4,374,700,000. The net returns for the FY2015 also shot up compared to the FY2014. The working capital of Boral Limited is low because of the lower levels of the current assets. The interest cost for the FY2015 was $-72,100,000.00, which was much lower compared to the previous FYs. The increased revenues on investment are the direct result of the saved interest cost to the company. These traits clearly show that Boral Limited is operating under the aggressive working capital policy. According to Boral (9), site separation deferred revenue resulted in increased cash flow in the FY2015.
The report further records that a reduction in the inventories further improved then companies returns. Other strategies that the company employed to improve the performances included strong price discipline (Boral 12). These facts further support that Boral Limited shifted its capital management policy to aggressive policy. Different Interest-bearing Financing and the Overall Weighted Average Cost of Capital (WACC) The most significant current liabilities of Boral Limited includes accounts payable, interest-bearing loans and other borrowings, tax legal responsibility and supplies.
Franco, Hill and Chen (446-447) note that interest-bearing bank loans remain the current primary liability. Therefore, to get the interest-bearing financing, we find the market worth of the liability. We then use the book worth of liability (D) to calculate the value of debt. For simplification purpose, we sum up the most recent average short-term debt and continuing debt. For the FY2015 ended in June, the short-term debts were $ 1,800,000.00 while the long-term debts were $ 1,320,800,000.00. However, as of December 2015, the average short-term debts were and the long-term average loan was.
Therefore, the aggregate book value of debt (D) is:
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