Global Financial Management Essay Example | Topics and Well Written Essays - 250 words

Global Financial Management - Essay Example ROE has the advantage of flexibility. When selecting projects to invest in overseas, it enables one to either use the simple way of calculating and measuring income or use a more complex way with so much details. Return on Equity can of benefit when used in trend analysis. This means that using ROE can enable a company to calculate its return on equity over a number of years. However, ROE has some disadvantages when selecting projects to invest in overseas. It only shows the company’s equity investment performance. Therefore, a company might have leveraged its investment in a huge amount of debt, but improving its ROE as long as the debt is creating income. Another disadvantage of ROE is the fact that it only measures the net income. Net income includes revenue without the expenses, which means that ROE is affected and lowered if a company has large amounts of capital assets. Internal Rate on Return can be defined as the return rate used to measure the amount of profit generated by investment in capital budgeting. It’s used to indicate the efficiency and quality of an investment. IRR is also used to measure whether projects and investments are appealing. Its advantages when selecting projects to invest in overseas include; time value whereby the cash flow is weighed equally using the time value of money. This is because the future cash flow timing is put into consideration. Another advantage is the way IRR makes it simple to measure the value of several projects together that have been put into consideration. Internal Rate on Return has a number of disadvantages. This method does not consider future costs as it only calculates the cash flow created by a project hence leaving out the capability of the project creating cash flow in future. Another disadvantage is the fact that IRR does not consider the size of the project. It only measures cash flow in comparison to the amount of capital creating that cash