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Assignment-1: Sub: Strategic Financial Management

The document discusses corporate restructuring and its purpose. It defines corporate restructuring as modifying a firm's business portfolios to increase profits. Reasons for restructuring include changing ownership, adverse economic conditions, and lack of integration between divisions. The main types of restructuring are financial restructuring, like altering debt, and organizational restructuring, such as reducing hierarchy levels and downsizing employees. The overall goal of restructuring is for a company to be more competitive and survive difficult economic periods.

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Akhil J
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61 views11 pages

Assignment-1: Sub: Strategic Financial Management

The document discusses corporate restructuring and its purpose. It defines corporate restructuring as modifying a firm's business portfolios to increase profits. Reasons for restructuring include changing ownership, adverse economic conditions, and lack of integration between divisions. The main types of restructuring are financial restructuring, like altering debt, and organizational restructuring, such as reducing hierarchy levels and downsizing employees. The overall goal of restructuring is for a company to be more competitive and survive difficult economic periods.

Uploaded by

Akhil J
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ASSIGNMENT-1

SUB: STRATEGIC FINANCIAL MANAGEMENT


TOPIC: CORPORATE RESTRUCTURING AND
PURPOSE

SUBMITTED TO, SUBMITTED BY,

ASST.PROF. GAYATRI.H AKHIL.J

DATE:8/5/21 SNT19MBA01
INDEX

SL.NO TITLE PAGE NO:

1 INTRODUCTION 1

2 MEANING &DEFINITION 2

3 CHARACTERISTICS 3-4

4 PURPOSE & TYPES 4-7

5 CONCLUSION 8

6 REFERENCE 9
1

INTRODUCTION
The process of corporate restructuring is
considered very important to eliminate all the financial crisis
and enhance the company’s performance. The management of
concerned corporate entity facing the financial crunches hires a
financial and legal expert for advisory and assistance in the
negotiation and the transaction deals. Usually, the concerned
entity may look at debt financing, operations reduction, any
portion of the company to interested investors. In addition to
this, the need for a corporate restructuring arises due to the
change in the ownership structure of a company. Such change in
the ownership structure of the company might be due to the
takeover, merger, adverse economic conditions, adverse changes
in business such as buyouts, bankruptcy, lack of integration
between the divisions, over employed personnel, etc.

The Corporate Restructuring is the process of


making changes in the composition of a firm’s one or more
business portfolios in order to have a more profitable enterprise.
***********************
2

MEANING AND DEFINITION

MEANING:

Corporate restructuring is an action taken by the corporate entity


to modify its capital structure or its operations significantly.
Generally corporate restructuring happens when a corporate
entity is experiencing significant problems and is in financial
jeopardy.

DEFINITION:
The Corporate Restructuring is the process of making changes in
the composition of a firm’s one or more business portfolios in
order to have a more profitable enterprise. Simply, reorganizing
the structure of the organization to fetch more profits from its
operations or is best suited to the present situation.

********************
3

CHARACTERISTICS OF CORPORATE
RESTRUCTURING
To improve the Balance Sheet of the company (by
disposing of the unprofitable division from its core
business)
Staff reduction (by closing down or selling off the
unprofitable portion)
Changes in corporate management
Disposing of the underutilized assets, such as brands/patent
rights.
Outsourcing its operations such as technical support and
payroll management to a more efficient 3rd party.
Shifting of operations such as moving of manufacturing
operations to lower-cost locations.
Reorganizing functions such as marketing, sales, and
distribution.
Renegotiating labor contracts to reduce overhead.
Rescheduling or refinancing of debt to minimize the
interest payments.
4

Conducting a public relations campaign at large to


reposition the company with its consumers.

**********************

PURPOSE OF CAPITAL
RESTRUCTURING

Change in the strategy: The management of the distressed


entity attempts to improve its performance by eliminating its
certain divisions and subsidiaries which do not align with the
core strategy of the company.

Cash Flow Requirement: Disposing of an unproductive


undertaking can provide a considerable cash inflow to the
company.

 To enhance the share holder value, the company should


continuously evaluate its:
5

a. Portfolio of businesses
b. Capital mix
c. Ownership
d. Asset arrangements to find opportunities to increase the
shareholder’s value
 To focus on asset utilization and profitable investment
opportunities.
 The company can also enhance value through capital
Restructuring, it can innovate securities that help to reduce
cost of capital.

Lack of profits: The undertaking may not be enough profit


making to cover the cost of capital of the company and may
cause economic losses. The poor performance of the
undertaking may be the result of a wrong decision taken by the
management to start the division or the decline in the
profitability of the undertaking due to the change in customer
needs or increasing costs.

Reverse Synergy: This concept is in contrast to the principles


of synergy, where the value of a merged unit is more than the
6

value of individual units collectively. According to reverse


synergy, the value of an individual unit may be more than the
merged unit. This is one of the common reasons for divesting
the assets of the company.

********************

TYPES OF CORPORATE
RESTRUCTURING

1. Financial Restructuring: This type of restructuring may


take place due to a severe fall in the overall sales because
7

of the adverse economic conditions. Here, the corporate


entity may alter its equity pattern, debt-servicing schedule,
the equity holdings, and cross-holding pattern. All this is
done to sustain the market and the profitability of the
company.

2. Organizational Restructuring: The Organizational


Restructuring implies a change in the organizational
structure of a company, such as reducing its level of the
hierarchy, redesigning the job positions, downsizing the
employees, and changing the reporting relationships. This
type of restructuring is done to cut down the cost and to pay
off the outstanding debt to continue with the business
operations in some manner.

*************************
8

CONCLUSION

Corporate restructuring is the process of redesigning one or

more aspects of a company. The process of reorganizing a

company may be implemented due to a number of different

factors, such as positioning the company to be more

competitive, survive a currently adverse economic climate, or

poise the corporation to move in an entirely new direction

****************************
9

REFERENCE
1. Norley, Lyndon; Swanson, Joseph; Marshall,

Peter. A Practitioner's Guide to Corporate

Restructuring. City Financial Publishing. pp. xix,

24, 63. ISBN 978-1-905121-31-1.

2. ^ "Business restructuring: Exit charges for

restructurings in Europe | International Tax

Review". www.internationaltaxreview.com.

Retrieved 2017-12-23.

**************

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