There are many strategies to raise capital through equity, bond, and leverage financing; when talking about capital raising and financing strategies for AECOM, it can be said that the best way is to use Financial Leverage, which is borrowing money as an investment strategy (Ghosh & Jain, 2000).
AECOM Capital Raising Strategies
In the case of AECOM, financial leverage can be used for acquisitions, giving it new sources of revenue that may bring it profits and cover the interest on the money lent. Also, one of the advantages of this type of financing is that AECOM does not have to give up ownership stakes, such as what happens in stocks and bonds (Ozdagli, 2012); for AECOM, the borrowed money can be easily obtained through guarantees from its financial assets and the volume of its annual revenues.
Leverage Financing Mechanism for AECOM
A detailed financial study is required before Aecom can start making a decision; this is done by defining the areas of investment that the company targets and the amount of financing needed for it, then calculating the potential revenue from this investment and its ability to repay the loan and the interest on it, in addition to the profit margin that will remain for the company, if these targeted investments do not cover that, then there is no need for them from the outset (Long & Malitz, 1985).
Resource Allocation for AECOM
It refers to determining the use of the company's financial resources in its investment operations. It is a complex and multi-stage process, according to Lee, 2017); it does not mean only the above but also when and how each resource should be used to obtain the highest possible productivity; according to the same paper, there are strategic steps to allocate resources, including defining goals and objectives and allocating the necessary resources needed these goals, the first stage is of a cognitive nature to know the investment project for which resources must be allocated, then comes the impetus stage by examining the social, political and economic forces surrounding the new investment, comes other aspects such as studying the contextual motives of investment behavior, the hierarchy of investment decision-making, and the optimal distribution of resources according to decision-makers.
Conclusion
According to (Mandelker & Rhee, 1984), the allocation of resources for financial leverage is a critical and hazardous process; if the rate of return does not exceed the interest rate, it leads to a series of losses, most notably the accumulation of this interest and an increase in its rate, which leads to the lender coming on the same assets, this also leads to the collapse of the market value of the company based on the significant risk of investing in it and it is unable to pay its obligations.
References
Ghosh, A., & Jain, P. C. (2000). Financial leverage changes associated with corporate mergers. Journal of Corporate
Finance, 6(4), 377-402.
Ozdagli, A. K. (2012). Financial leverage, corporate investment, and stock returns. The Review of Financial Studies, 25(4),
1033-1069.
Mandelker, G. N., & Rhee, S. G. (1984). The impact of the degrees of operating and financial leverage on systematic risk of
Common stock. Journal of financial and quantitative analysis, 19(1), 45-57.
Maritan, C. A., & Lee, G. K. (2017). Resource Allocation and Strategy. Journal of Management, 43(8), 2411–2420. Retrieved
from SAGE Psychology Subject Collection
Long, M. S., & Malitz, I. B. (1985). Investment patterns and financial leverage. In Corporate capital structures in the United
States (pp. 325-352). University of Chicago Press