A frequent criticism of the management of publicly-owned American companies is t

Question

A frequent criticism of the management of publicly-owned American companies is that they are too short-term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting. Can you suggest a company, or industry, where this appears to be true. Why? How? Do the recent problems at Toyota suggest that the problem is spreading to other countries? How do we keep an emphasis on the "long term" from becoming an excuse for continued poor results is the "short term."

Explanation / Answer

Usually most of the major corporations are too focused upon of fast returns and at same time also were too short term oriented, this is because of reason they could have ability to get more borrowed and invested capital with short term fast returns through financial instruments like bonds, loans and shares stock. This strategy helps in borrowing much and investing more resulting with short term returns.

The best example of industries which follow such startegies from decades stand for telecom and internet. Also companies like mortagage and non banking finance companies. However when borrowed capital is used as invested capital the companies need to showup their short-term returns from investments in each quarter which becomes a risky for the business. In such instances the global recession occurs with tight cash management, thus whenever the cash management is tight the companies turn around to become short-term oriented.

When lenders are ready for lending and investors are ready for investing, then it would be much easier for firm to be long-term focused. when the bad reserves of business get depleted then automatically the orientation upon returns shift from long-term to short-term.Hence the spreading strategy is not a good characterization.

The new businesses wouldnot get cash instantly from sales since day 1, hence they needs borrowals still the sales grow. this may result in fall of reserve balances which may tend to impact shorterm returns and finally short term return impact over long-term ones.

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