Reply 6.3

International capital structure means that a company sources its capital both from domestic and foreign sources. International capital structure is very important because it gives a company the benefit of exploiting low cost capital, promotes country growth and firm value, reduces financial risk of the company, minimizes cost, helps in knowing a company’s financial and investment planning, and promotes better utilization of funds. It also enables multinationals to enjoy lower costs which comes with access to funds from different countries.

Working capital management is very important for companies because working capital is surrounded by risks. Cash can be stolen if proper structures are not in place, cash receivables face risk of default and holding inventory risks of depletion are all probable risk. Other risks include but are not limited to the following:

Risks associated with management of cash:

1. Misappropriation of cash.
2. Wrong use of cash by the unauthorized individuals.
3. Errors made by the bank due to incorrect banking information.

Risks associated with management of credit:

1. Risk due to failing in payment of loans at right time.
2. A firm can be unable to repay asset-secured fixed or floating charge debt.
3. Inefficient management of credit data.

Risks associated with management of inventory:

1. Risk due to theft of the inventory.
2. Risk due to waste of the inventory.
3. Risk due to damage of the inventory

References:

Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management: Theory and practice [with MindTap] (15th ed.). Mason, OH