Financial management Essay Example | Topics and Well Written Essays - 2250 words - 1

Financial management - Essay Example Additionally, share of both companies Aguia and Pomba if traded in a perfect market, investors get significant choices to make preferred investment plans. Moreover, the capital structure of Aguia, which compose of both equity and debts and Pomba of all equity finance, will significantly affect the decisions of the investor prior to investing the share of any of these two companies. In the general context, stock investor’s takes there investment priority based on the strong fundamental aspects and strong balance sheet of the company. Moreover, the strength of the balance sheet will be evaluated not only based on the working capital adequacy or the positioning of asset but also the capital structure. Capital structure also plays a fundamental role. Additionally, the capital structure of the company will provide signal to the investors regarding the valuation of the company in the marketplace. For instance, company readily makes the decision to exchange part of debt in respect of the equity. This will likely increase the value of the firm and reduce the possibility of risk, as it will provide the signal in the market that the firm debt capacity have significantly increased. Furthermore, in the context it can be affirmed that the leveraged and unleveraged firm have different feature, characteristics, advantage, and disadvantages. For instance, having capital structure with debts involves obligations to payback interest. On the other hand, equity involves high cost and return to satisfy the shareholders. Moreover, in the case of perfect market investor’s will be in a position to analyze the market and the share prices with the available information. This can be done with the assistance of various technical analytical tools to identify the risk and return trade off in taking investment decision (Masulis, 1980). Correspondingly, if share of Aguia and Pomba is