Operating, Investing and Financing of a Firm Abroad - Essay Example

Taylor Wimpey Plc is a leading real e development firms in United Kingdom and also operates into US and other markets. Since financial crisis, the firm has not been able to perform well due to slump in the housing market in US, US and other developed markets. (Financial Times). This change in the overall business and economic conditions therefore have also reflected into the overall operating, investing as well as financing activities of the firm also. Details of firm’s operating, investing and financing activities are given below: Operating Activities Firm has been able to generate profit from its continuing business and has shown that its operating activities have been affected by reversal of its provisions.

1 Decreases in provisions may indicate that the firm is expecting a favorable future scenario wherein its bad debts may reduce and hence it has reversed its provisions. This may also suggest that the firm has put in place a better and improved account receivables policy along with improved recovery strategy. Despite this, firm seems to tying in more of its capital in receivables and inventory however, considering the nature of business i.e. construction, it may seem that the receivables is a natural part of the business.

Since construction projects take time to complete. During such phase, receivables may naturally occur as construction activity takes place. There has been pension contribution too in the operating activities wherein payments have been made in excess of the charge. Firm has also paid the interest on its loans suggesting that higher levels of debt may also increase the interest expenses for the firm and resultantly interest payments forming one of the larger part of operating activities. Investing Activities A closer look at the investing activities of the firm, as reflected in its cash flow statement, indicates that much of the cash in this category has been generated by the sale of subsidiaries.

This suggests that the firm has been actively involved in the disposal of those subsidiaries which may not be proving profitable. Considering the current scenario, this may seem a relatively straight forward and correct strategy to divest those assets which are not profitable and may divert the attention and energy of the firms. Most profitable firms tend to focus more on their core competencies and engage into such activities which can help maintain the competitive advantage. Other sources of investing activities are cash generated from joint ventures and it is also the second most important investing activity of the firm.

In order to expand further into international markets, firm has been making joint ventures with foreign firms. Entering into new markets may also seem a plausible strategy as growth options in already developed markets may be low due to adverse economic situation. This therefore may indicate a relatively good and valid strategy for the firm to adapt. Financing Activities Major financing activity has been observed in the repayment of loans wherein firm has been able to pay off its loan to reduce its debt.

This seems to be a relatively good strategy to reduce the debt and consequently reduce the overall risk of the business. Higher levels of debts actually reduce the firm’s ability to divert its cash flow to the constructive business activities besides increasing its risks. It is also critical to note that higher levels of debt push firms to become more vulnerable especially during the worse economic times such as current one. The wiser strategy in this regard therefore can be the reduction of debt in order to free up firm’s resources and further discipline the balance sheet of the firm.

Firm is therefore cleverly following the strategy of repaying its debentures as well as loans in order to allow it to actually reduce the risk and improve its financial position. Financing activities also indicates that the firm has been actively pursuing the repurchase of its own shares. This may also seem a good strategy especially during the times when markets are not performing well. Low performance of stock markets automatically reduces the value of most of the shares therefore firms find it feasible to actually repurchase its shares at lower prices and re-issue them at a later date against higher prices.

Repurchase of shares also seem to strengthen the balance sheet of the firm and reduce the volatility of the value of the shares in the market. Low volatility of prices therefore may create a relatively favorable image of the firm for the investors. Resultantly firm can resell its shares at higher prices in future and further strengthened its balance sheet. Works Cited Financial Times. Taylor Wimpey PLC. 28 June 2012. 28 June 2012 .