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hi john,
1. what is the relationship between gearing ratio and cash flow forecast ? if higher gearing ratio, there is some possibility that gearing ratio would decrease ?
2. is there industries that mainly use equity finance to gain some flexibility in either equity or debt financing ?
3. i’m not sure how transfer pricing can build better international competitive position and match local competitors’ prices ? transfer pricing is merely price paid to an organization for supplying goods and services but i’m not sure how this can influence competitive position and local competitors’ prices ?….
thank you john !
1 If you are referring to normal free cash flows, then there is no relationship to the level of gearing. As far as free cash flows to equity are concerned, then the more gearing the more the interest cash flow (and the less the cash flow to equity).
2 It is not industry dependent. M&M say that the higher the gearing the better, but it depends on all sorts of factors such as the availability of debt borrowing, what security the company can offer (which is obviously less in the case of service industries), and the attitude to risk.
3. Charging a lower transfer price to a subsidiary in a foreign country can mean that the foreign company can then charge lower prices to customers and compete with local businesses.
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