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Foundations Of Financial Management
Found in: Page 680
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

Comment on any dilemmas that multinational firms and their affiliates may face regarding debt ratio limits and dividend payouts.

The debt ratio in many foreign countries is higher than that used by U.S. firms. This results in the dilemma of making the financial decision for foreign affiliates of the American firms.

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Step by Step Solution

Step 1: Definition of Financial ratios

The different comparisons made between the different line items of the financial statement to determine the financial status of the business entity are known as financial ratios.

Step 2: Dilemmas regarding debt ratio limits

A foreign affiliate of an American firm faces a dilemma in its financing decision:

  • Should it follow the parent firm’s norms or that of the host county?
  • Who must decide this?
  • Will it be decided at the corporate headquarters in the United States or by the foreign affiliates?

Step 3: Dilemmas regarding Dividend policy

Whether the dividend policy of the foreign subsidiary must be controlled by the parent company or the foreign company can control its dividend policy independently?

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