Balance Sheet Management is aimed at the determination of the optimal composition of different funding elements such as debt, mezzanine and equity for a company.
It is a challenge to find the right balance in the contradicting objectives of short-term liquidity risk and lowering the long-term funding costs (eg WACC) of the company.
On the one hand, corporates are seeking sufficient financial buffers in order to mitigate liquidity risk, while on the other hand a more leveraged funding structure lowers the after tax funding costs and hence increases shareholder value. Next to these contradicting objectives, other prerequisites need to be taken into account, such as differing shareholder and stakeholder objectives, bank relationship management in order to determine the optimal composition of the balance sheet in a dynamic way.
We have developed a long-term financial planning model in which the optimal balance sheet composition can be simulated under different scenarios. Furthermore, we advise our clients in the strategic discussion on achieving shareholder objectives in relation to the funding structure of the company.
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