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Management Discussion Questions

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1. For what kinds of companies is financial slack most valuable? Are there situations in which financial slack should be reduced by borrowing and paying out the proceeds to the stockholders?

2. Describe some alternative measures of a firm's overall performance. What are their advantages and disadvantages? In each case discuss what benchmarks you might use to judge whether performance is satisfactory.

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Question 1
Remember that financial slack is the extra amount of money a company has which it can use to finance its operations in times of economic scenarios with adverse effects on their revenues and profit. Given this it's logical to conclude that companies with businesses that are highly correlated on economic performance of the country as a whole will benefit from having financial slack the most. In other words, companies who have very seasonal business will find this slack ...

Solution Summary

The solution is answered in 322 words to discuss the kinds of companies that value financial slack most and alternative measures of a company's overall performance.