Essays on Boral Limited Financial Management Essay

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The paper 'Boral Limited Financial Management' is a great example of a Management Essay. When making an investment there are factors that need to be taken into consideration for one to reap profits from this whole process. Investors are required to take close consideration in the industry and the firm in which they will want to invest. The various factors that need to be looked into include; financial performance of the firm, the expertise that one contains in knowing the insights about the industry, the market analysis about the firm should be done to determine the status of the firm and its competitive level and the impact of failure on the investment should be analyzed so that precautionary measures should be put in place to evade any negative impacts. From the above information, we can conclude that Bora limited has good working capital management policies since most of its current working capital can be able to settle the debts that need to be settled.

This is indicated by the fact the current assets are higher than the debts that firmly hold. This is because working capital is determined by the current assets less than the current liabilities.

From the trend, it can be concluded that in recent years the firm has been able to service its short-term debts without problems. This makes Bora Limited to be attractive to the investors as there will be no legal battles between the firm and debtors. With the fact that the working capital is positive, then it means that the firm will easily meet the short term expenses and have an opportunity of exploring new areas of investment that are going to be profitable to the company.

The firm will easily be able to take decisions since it will be flexible in the way it will handle its activities leading to profitability. The positive working capital management policy is healthy for Boral Limited. It makes it one of the companies that are being looked into for investment since it has a good inventory management system, cash management system, short term financing policies, and debt management system which are all a requirement for the growth of the firm (ACM, 12). When looking at the weighted average cost of capital (WACC), we try to investigate the rate at which a company is supposed to pay in regard to all financial assets that acts as the security.

We look at it so as to determine the cost of capital of the firm currently comparing it with the market rates. Looking at Boral Limited, the current cost of capital is 11.31%. Because it costs a firm to raise capital, then it is prudent for a firm to invest in those areas that will lead to earning extra returns (higher returns).

Any firm that in its prediction sees that in the future times it will continue to generate positive returns, then it is possible that the firm’ s growth will increase. However, if the firm’ s earnings do not end up matching the cost of capital that the firm incurs, then its value will be destroyed with its growth. Looking closely into Boral’ s case, as of today the returns on the invested capital are 4.03% which does not match 11.31% which is the cost of capital.

Thus, if Boral continues to be financed by the current firms then it will destroy its growth pattern that is upward trending. It is always prudent that firms should look into the value they derive from any investment. Always the investments are made to derive increased value for the investors. When the cost of capital is higher than the rate of return that is expected out of the investments of the firm then it will be difficult for the growth of the firm to be positive.

Looking at the trend that has been there, the cost of capital has been reducing but the rate of return has not yet matched the said cost. The management of Boral should be in its move to ensure that they have put in place measures that are going to foresee the cost of capital matching the return of its investment. This can be achieved through the firm seeking alternative sources of financing that will be deemed cheap and affordable (Shuenn & Cheng, 17). To achieve this, the firm should review its capital structure, dividend policy, and the investment policy.

Other factors may be out of reach for the firm, however, these actions while baring a level of risk will enable the firm at the end to achieve its goal of matching the cost of capital with return on investment.

Work cited

Australian Manufacturing Council. Practicing Balance: Integrating Best Financial Practice into Your Business, 1996. Melbourne, Victoria.

John R. Graham, Campbell R. Harvey .The theory and practice of corporate governance: evidence from the field, 1999. Duke University, Durham, NC 27708, USA.

Shuenn-Ren Chenga & Cheng-Yi Shiu b,Investor. Protection and capital structure: International evidence, 2006. Chung Hua University, Hsinchu 300, Taiwan, ROC.

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