Professional Documents
Culture Documents
restructuring
• Financial restructuring involves changes in the
capital structure and capital mix of the company to
minimize its cost of capital.
• It deals with infusion of financial resources to
facilitate mergers, acquisitions, joint ventures,
strategic alliances, LBOs, and stock buyback.
• All these initiatives depend on availability of free
cash flows, takeover threats faced by the company,
and concentration of equity ownership.
• Companies opt for financial restructuring for the
following reasons:
• Generate cash for exploiting available investment
opportunities
• Ensure effective use of available financial resources
• Change the existing financial structure to reduce
cost of capital
• Leverage the firm
• Prevent attempts at hostile take over.
• (JV with rivals of the bidder, share repurchase,
increase leverage, buy assets, Use excess cash, pay
or declare higher dividends, entering into
international partnerships)
• Financial restructuring is the reorganization of
the financial assets and liabilities of a corporation in
order to create the most beneficial financial
environment for the company.
• The process of financial restructuring is often
associated with corporate restructuring, in that
restructuring the general function and composition
of the company is likely to impact the
financial health of the corporation.
• When completed, this reordering of corporate
assets and liabilities can help the company to
remain competitive, even in a depressed economy.
• Every business goes through a phase
of financial restructuring at one time or
another.
• In some cases, the process
of restructuring takes place as a means of
allocating resources for a new marketing
campaign or the launch of a new product line.
• When this happens, the restructure is often
viewed as a sign that the company is
financially stable and has set goals for future
growth and expansion.
• The process of financial restructuring may be
undertaken as a means of eliminating waste from
the operations of the company.
• For example, the restructuring effort may find that
two divisions or departments of the company
perform related functions and in some cases
duplicate efforts. Rather than continue to
use financial resources to fund the operation of
both departments, their efforts are combined. This
helps to reduce costs without impairing the ability
of the company to still achieve the same ends in a
timely manner.
•
• In some cases, financial restructuring is a strategy
that must take place in order for the company to
continue operations. This is especially true when
sales decline and the corporation no longer
generates a consistent net profit.
• A financial restructuring may include a review of the
costs associated with each sector of the business
and identify ways to cut costs and increase the net
profit. The restructuring may also call for the
reduction or suspension of production facilities that
are obsolete or currently produce goods that are
not selling well and are scheduled to be phased out.
• All businesses must pay attention to matters of
finance in order to remain operational and to also
hopefully grow over time. From this
perspective, financial restructuring can be seen as a
tool that can ensure the corporation is making the
most efficient use of available resources and thus
generating the highest amount of net profit possible
within the current set economic environment.
• Financial Restructuring
a.Change in Debt Structure
b.Change in Capital Base
• c.Change in Group Structure
• Change in Capital Base .