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Asahi India Glass Limited: Leverage, A Double-edged Sword
內容大綱
Asahi India Glass Limited faces a situation encountered by many growing companies after having funded its diversification from retained earnings and debt, both in rupees and foreign currency. An over-reliance on borrowed funds without a matching infusion of equity has plunged the company into losses. To reduce its need for financial leverage, the company has issued equity shares on a rights basis, which has helped but is insufficient to reduce its debt burden. The company’s management is seeking alternatives to further deleverage the company’s capital structure but is finding it difficult due to losses in the recent past, the adverse operating environment created by the global economic crisis and a slowdown in the major segments in which it operates.
學習目標
The case is best suited for a course in corporate finance at the MBA level or in an executive education program. Students will analyze and gain an understanding of the capital structure decisions made in a growing, profit-making organization. The key learning objectives of the case are as follows:<br><ul><li>To analyze the magnifying impact of financial leverage.</li><li>To explore the relationship between financial leverage and risk.</li><li>To demonstrate the “pecking order” theory.</li><li>To understand the risks and rewards associated with foreign-currency loans.</li><li>To differentiate between equity shares and preference shares.</li><li>To identify the factors influencing the choice between the public issue and the rights issue of shares.</li><li>To highlight the difficulties in deleveraging.</li><ul>