Impact of Long term Loans
Chief executive must be aware of impact on long term loan on the company because liabilities are debts the company incurs. As Chief executive should understand that the liabilities are the basically source of funding and they can grow large, and may find itself owing more than it earned the profit. So the Chief executive must manage the long term loans because it is liability that contributes its role for earning profitability. Secondly the long term loans are borrowed money and if the company has less amount payable the value of the company will increases (Catherine, 2011). In the balance statement the long term loans are the assets (Kenneth and Willinger, 2009). The balance sheet equation is as Assets= Sum of Liabilities + Equity. It simple means that the business resources (long term loans) are acquired by incurring obligations to creditors, and when the amount of loan will be low means that the value of assets will be decrease. Change in the assets means that the change in the liabilities and owner’s equity (Agnes, et al., 2010).
Impact of Equity Share
Chief executive must maintain the value in the organization that is actual equity share. Equity share is basically the part of the business that could not be funded by the loans amount but it could be earned from the buying of shares of the business (Olsen and Dietrich, 2011). Equity share always have a positive impact on the business especially in financing for a business, so the Chief executive must consider this factor. If by mistake if the value of equity shares drops, in this way the worth or value of the company will be decrease and investors will not invest money (Juan, 2008). Repurchase of share will reduce the cash holding and also the total assets it will also shrink the shareholder’s equity. As a result return on asset and return on equity typically improve (Patricia, et al., 2011).
Impact of Finance and Operating Leases
To purchase an asset the companies borrow the money from creditors and in this way the assets side is debited in the balance sheet (what comes in) and the interest amount (what goes out) is always deducted from the operating profit (expenditures) (Ball and Watts, 2009). In this way the operating profit will be low (Mary, et al., 2013).
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