A New Financial Policy at Swedish Match Case Solution
Q: 1 Business and financial risks of Swedish Match
Business threat in linked with the daily functions of the business, reduction in the demand and increase in the cost of the goods that are being produced , the main reason is the inflation , as the participant in the market are increasing , climate change rules and regulation of the countries the biggest threat associated with Swedish Match is the threat of health danger.
It is the alone distributor of the tobacco in the Swedish, as the company does not have any new participants, they are monopolist, as they don’t have any competition. The government has strict rules regarding the health and lives of the people and also the selling of this tobacco as well. Therefore it can affect the profits of the company. The government has also increased the taxes of selling tobacco therefore it can ultimately reduce the profits and with the increase in the cost of goods manufactured it will definitely dealt the company’s position.
The strategy of the Swedish Match to again capture the resources could increase or decrease the business as well. For Example if the company’s rating decreases than no investor would invest in their company, and they would have to shut their business.
The increase in the financial risk of the company would force them to produce goods on credit. That would increase the chances of the bankruptcy, and it will have to pay its liabilities on time , if they have to able to continue their business.
Q2) The most relevant costs and benefits of debt for Swedish Match?
To raise the debts from banks, it is good for to set some insurance against the expanding debt. The investors are more worried about the credit ratings opposed to the loan cost.
The higher ratings assessments for good AAA ratings score have the lower cost of debts when compared with other loan fees. Assuming Swedish Match expands the proportion in its capital construction, it is conceivable that its expense of obligation will increase therefore; it will likewise build the insolvency cost of the organization, which could bring about bringing down the offer cost of the organization.
There are a few advantages of the debts. The big advantage of debt is that it is charge reduced as it saves a high measure of taxes, in this way; it is a cheap money source when compared with the value financing. The obligation expands the benefit of the company , however it will decrease the Weighted Average Cost of Capital (WACC)
If Swedish Match builds the leverage ratio then its expense of debt will increase . Despite what is generally expected, it can save a higher measure of duty…………………………
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