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Word Count: 1,310
Successful diagnosis and prescription depend heavily on thoughtful creativity and careful judgment Three basic stages in that process 1 Description the ability to describe a firms financial policies is an essential foundation of diagnosis and prescription 2 Diagnosis benchmark perspectives then one compares the idealized and actual financial structures looking for opportunities for improvement 3 Prescription action recommendations should spring from the insights gained in description and diagnosis PART I IDENTIFYING CORPORATE FINANCIAL POLICY THE ELEMENTS OF ITS DESIGN The first task for financial advisors and decision makers is to understand the firms current financial policy Part I presents an approach for identifying the firms financial policy The Concept of Corporate Financial Policy Financial policy is a matter of managerial choice Corporate financial policy is a set of broad guidelines or a preferred style to guide the raising of capital and distribution of value Policies should be set to support the mission and strategy of the firm Policies are products of managerial choice rather than dictates of an economic model Policies change over time The Elements of Financial Policy 1 Mix of classes of capital mix may be analyzed through capitalizations ratios debt-service coverage ratios and the firms sources-and-uses-of-funds statement 2 Maturity structure of the firms capital to describe the choices made about the maturity of outstanding securities is to be able to infer the judgements the firm made about its priorities The standard measures of maturity are term to maturity average life and duration 3 Basis of the firms coupon and dividend payments basis addresses the firms preference for fixed or floating rates of payment and is a useful tool in fathoming managements judgment regarding the future course of interest rates 4 Currency the global aspect of a firms financial opportunities management of the firms exposure to foreign exchange rate fluctuations and exploitation of unusual financing possibilities in global capital markets 5
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