Influential Article Review- Annual Capital Outflow for an Institutional Investment Firm: A Flow-through Approach to Coordination of Network Support Chain Preparation and Financial Planning

Abstract

This paper examines finance. We present insights from a highly influential paper. Here are the highlights from this paper: A common side effect of cross-linked global economies is that well-positioned middle-class companies are acquired by institutional investors, which formulate unreasonable return expectations in many cases. Therefore, the resulting payouts are often not in line with business operations so that even world market leaders get into trouble or close. In this context, we consider the case of a sanitary company, which had to manage the described situation after a business takeover. In order to coordinate the annual cash outflows to the investor with intra-organizational supply chain planning and financial planning, we propose a mixed-integer non-linear programming model that is based on the flow-to-equity discounted cash flow method. The objective is to maximize the present value of equity while determining annual cash outflows to the institutional investor during his engagement. As the decisions of the investor during his engagement influence possible operations of the company after his engagement, the residual value of equity (that influences the selling price) is considered. The modeling is based on cash flow series, which result from supply chain operations and restructuring on the one hand, and from financial transactions on the other. Financing is characterized by interest rates depending on the period the credit starts, the credit period, the debt limit of the company and the current total debt. As the latter is a result of the optimization, non-linearity arises. Nevertheless, both the expected demand scenario and further randomly generated demand scenarios of the sanitary company could be solved to the optimum with the commercial optimization package GAMS 23.8/SCIP 2.1.1 within acceptable computation times, if capacity profiles are assigned to the locations to depict feasible and/or preferred capacity developments. For our overseas readers, we then present the insights from this paper in Spanish, French, Portuguese, and German.