Capital Structure Decisions: Evaluating Risk and Uncertainty

Chapter Ten

Strategic Determinants of Sources of Capital

PART OF NARAYAN MURTI’S Chairman’s Statement from the Infosys Annual Report 2011 reads,

Strategy is about ensuring sustained differentiation in a changing environment for better net income margins. Differentiation with better net income margins is meaningless. In my operating margins and earning before taxes, depreciation and amortisation are not appropriate measures. In fact the best measure of differentiation is per capita free cash flow generated. Such cash flows bring cash to invest in better people, research and development, infrastructure, training and better customer and employee confidence. The famous Harvard Historian Niel Ferguson says in his book Civilisation: The West and the Rest that the six attributes that have made Western civilisation dominant over the last five hundred years are competition, science, property rights, medicines, consumption and a good work ethic. I have been saying for many years that the factors that differentiate a corporation from its competitors are an enduring value system, openmindedness, a pularistic [sic] and meritocratic approach and practicing speed, imagination and excellence in execution. Leaders have to focus on creating such an environment.

A strategic decision maker is a leader who guides the organisation to create resources that enable it to compete and scientifically create competitive demand. Strategic exposures induce the need for greater financial flexibility. Capital ...