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Discussion Thread: Company Cash Flow
It is not uncommon for financially vulnerable organizations to seek help from outside
sources. One way that help might be attained is through the issuance of long-term debt. The
Corporate Finance Institute (n.d.) describes long-term debt as any amount of debt that does not
have to be repaid for at least twelve months. There are many different types of long-term debts,
including bank debt, mortgages, bonds, and debentures.
Obtaining long-term debt, while helpful, is not as simple as just asking for it. Many
institutions may be skeptical about issuing a loan to a struggling company. However, there are a
few ways that such institutions might be persuaded. First, as a business leader seeking a loan, I
would share the findings of a 2020 study that focused on the effects of long-term debt on
financial growth. This study found a direct positive correlation between the two, when measuring
the growth of earnings per share (EPS) and market capitalization (Shikumo et al., 2020).
Additionally, I would prepare a forecast analysis demonstrating my company’s plans for the
future. When carried out, these plans would allow my company to provide a return to the lender
promptly.
Although obtaining long-term debt would be promising for the continuation of the
company, it is important that stakeholders remain satisfied throughout this process. In order to
ensure their satisfaction, my top priority would be consistent communication. Although a time of
financial uncertainty would bring unfortunate news along with the fortunate, it is crucial that
stakeholders are informed and aware of the situation at hand. Communicating effectively would
create a sense of teamwork that would encourage stakeholders to remain loyal to the company.
Additionally, I would implement a risk budget. This would ensure the preparedness of my
company in the event of another financial crisis (Kabiri et al., 2023). In budgeting for risks, I
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would assess which assets generate the most risk and how to better allocate risk in the future.
Hopefully, stakeholders would see my efforts at risk budgeting as promising for the future of my
company and remain loyal through this crisis.
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References
Kabiri, M. S., Msiyah, C. E., & Nouisser, O. (2023). Risk budgeting: A tactical asset allocation
approach for retirement reserve funds in Morocco. Journal of Financial Risk
Management, 12(2). DOI: https://www.scirp.org/journal/paperinformation.aspx?
paperid=125901
Long Term Debt. (n.d.). Corporate Finance Institute. Retrieved November 23, 2023, from
https://corporatefinanceinstitute.com/resources/accounting/long-term-debt-
ltd/#:~:text=Long%20Term%20Debt%20(LTD)%20is
Shikumo, D. H., OluochOluoch., & Wepukhulu, J. M. (2020). Effect of long-term debt on the
financial growth of non-financial firms listed at the Nairobi Securities Exchange. IOSR
Journal of Economics and Finance, 11(5), 01-09. DOI:
https://arxiv.org/pdf/2010.12596.pdf
