Businesses operating on a global scale are usually most concerned with maximizing the wealth of shareholders, which is measured by the price of the company’s shares. International companies raise the price of shares by adding value to the firm. Value may be added in a number of ways, but managing global expenses is a major focus of international financial managers. Cost control may stem from exchanging money at the proper time, balancing payments, managing risk, and organizing equity capital.
International companies conduct business in countries that use different currencies, and it is often necessary to convert money into foreign forms. Exchange rates fluctuate daily, or even hourly, depending on the economic circumstances of the both the multinational’s home country and the foreign nation. By paying attention to the revaluation and the devaluation of currency, a financial manager attempts to change currency at a time when the exchange rate is the most beneficial to her company. A currency is often listed as being worth a percent of another currency, so it is best to exchange when the money held is worth a lower percentage of the exchange currency.
Reading and understanding the company’s balance of payment report is another technique for controlling global expenses. A balance of payments is an official accounting statement that summarizes the business’s economic transactions, both domestically and abroad. The United States Commerce Department requires global corporations to publish these statements quarterly, but the records could also be used as gauge of the company’s overall financial health. Financial managers use balance of payments reports to see where money is spent, determine if more money is coming in or going out of the organization, and then cut costs by trimming waste.
Most companies, not just organizations seeking to control global expenses, practice risk assessment and management. Before embarking on a new business venture, financial managers analyze the risks of investing in the venture, weighing the risks against the potential rewards. If the international endeavor fails due to a poor foreign business environment, the organization’s global expenses could increase dramatically. To assess the country’s business environment, company managers study a number of factors, including socioeconomic status, political environment, infrastructure, and inflation rate.
The cost of capital is how much it costs a company to fund itself. Managers use the cost of capital to determine how much money is spent on each venture, comparing the capital costs to the eventual return. Financial advisers may recommend ending projects that don’t have a positive return rate on the funds invested.
