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Running Head: HOMEWORK 2 1

HOMEWORK 2 3

Homework 2

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Managers need to understand leverage and breakeven to assist in the achievement of Vision 2030. Leverage is a financial concept that relates to how a firm uses borrowed capital as a finance source to expand its asset base (Keown, Martin, & Petty, 2019). Given that Saudi Vision 2030 involves investing, a dairy firm in Saudi Arabia can borrow money to invest in assets a cooler that would increase shareholders' value. Break-even is the point (s) where the company recoups its initial cash outlay used to undertake a given project and is now ready to generate profit. In the article, Saadi (2019) indicates that Saudi's breakeven oil price is expected to be $83.6/b as a way to balance the countries budget. The breakeven cost will help Saudi have funds to create more jobs, prop up its private sector as well as maintain foreign oil reserves. Saudi has a forecast of reducing its 2020 expenditure by 2.6% to Riyals 1.02 trillion. Similarly, Saudi is adhering to the Opec+ agreement, where it forecast oil revenue to decline.

Opec/non-Opec alliance had an agreement of deepening oil cuts to 1.2 million b/d. Despite Saudi reliance on oil to fuel its economy, the country expects non-oil growth to be a catalyst for economic growth in 2020. Shifting from the dependency of the oil-fueled economy is in line with Vision 2030, which envisages increasing tourist numbers and boosting the private sector. The government is using three priorities, including eliminating the fiscal deficit, improving the business environment, and implementing reforms. Saadi (2019) sees the lowering the breakeven as a way towards the future goal.

References

Keown, A. J., Martin, J. D., & Petty, J. W. (2019). Foundations of finance.

Saadi, D. (2019, December 30). Interview: Saudi Arabia's breakeven oil price to dip amid lower spending, says IMF | S&P global Platts. Retrieved from https://www.spglobal.com/platts/en/market-insights/latest-news/oil/123019-interview-saudi-arabias-breakeven-oil-price-to-dip-amid-lower-spending-says-imf