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Custom Managerial Finance essay paper
In most case, companies have recapitalized on their sales of assets in order to venture into more investment opportunities. However, this requires effective financial management that enables the company to distribute its cash distribution to shareholders. Ensuring effective management of such cash distribution is important as it relates to company’s investment opportunities, and more so its effectiveness in turning such opportunities into realities. Apple Inc. is one of the largest known international companies in the world. Its success and investment opportunity is widely contributed by its ability to enhance shareholder or investor value through free cash flow. It is in this respect, that the paper determines how the company can address its free cash flow through cash distribution and repurchasing of stock. It also analyzes the cash management technology and potential risk factors associated with investing on such as company as compared to a domestic corporation.
As defined by Reilly & Brown (2011), free cash flow (FCF) refers to the cash that any company can “generate after it has laid down the amount required to maintain or expand its asset base”. Therefore, FCF is important for any company, as it helps it in pursuing opportunities that will enhance shareholder value. Apple Inc. can address its free cash flow either by paying regular dividends, which should be increased each year by repurchasing common stock. It can achieve this by basing its free cash flow on the residual distribution model. According to this, it will pay dividends or repurchase stock only with the availability of more earnings that are required to support its optimal capital budget. Doing so, Apple Inc. will have the excess cash of $62 billion for the next four years, whereby fund dividends are greater than $10 per share, which translates to 2.1 % yield (Ray, 2011). It is based on the rationale that repurchase does not change the stock price, thereby generating cash required for more investment opportunities.
Cash management technology has continuously been used by many companies in going back to basics and determining how they can optimize their working capital. It is due to the fact that some cash management techniques normally go beyond the traditional solutions, thereby offering the company the ability to effectively calculate the safety of its stock inventory. For instance, technology providers, such as Optiant, SmartOps, i2, and Logic Tools, have developed multi-echelon inventory optimization solutions in the field of their technologies (Reilly & Brown, 2011). These have enabled most companies to calculate their inventory risks. However, on the other hand, it has allowed these companies to gain the rightful amount of inventory at the most convenient time. As it stands, it is the first step that leads to working capital optimization.
Based on the above notion, the Internet can be used by any company as a cutting-edge technology that enhances the management of working capital. It promotes the best practices that include developing supply chain finance, such as working capital management, third-party financing, and supply chain networks, which are designed for inventory optimization. It also allows of cross-functional metric and management, especially by enabling a company to obtain insightful measures and the management of working capital from best-performing companies. In turn, it assists the company in upgrading its working capital platform, thereby optimizing its inventory.
The most significant risk factors associated with investing in Apple Inc., rather than in any domestic corporation, is the lack of liquidity, the availability of less investment information, and political and socio-economic events, which may affect foreign markets. In most cases, investors have continuously demanded for mutual funds based on their investment in order to achieve their objectives. Additionally, other institutional investors, who invest heavily in foreign companies, such as Apple Inc., normally use money market funds obtained from company’s stock trading as a cash management tool. It is because such funds do not only provide investors with a high degree of company’s liquidity and competitiveness, but also display firm’s short-term yields. Therefore, the lack of liquidity can adversely affect investors’ opportunities.
For instance, in case Apple Inc. has lower trading volumes in foreign markets, it may restrict the amount of stocks that foreign investors may purchase. In turn, it may affect the value of shareholders or investors. Additionally, investing in a foreign company, such as Apple Inc., rather than in a domestic corporation, provides investors with less information, especially when the firm uses the language, which is not well-understood by investors. For example, Chinese investors may find it difficult to locate up-to date information about Apple Inc., which normally publishes its data in English. Moreover, it may be difficult in investing in an international company because of its vulnerability to political, social, and economic events that adversely affect foreign markets.
In conclusion, the company’s ability to manage its finance is a significant aspect in business that maximizes shareholder or investor value. It is therefore imperative for companies to incorporate effective cash management technologies, which do not only optimize their working capital, but also promote investment opportunities.
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