Case 2 Infineon Technologies Analysis Girija Shetty
Module 4- Finance
Infineon Technologies Time to Cash-in your Chips
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Submitted by Girija Shetty (GS12338)
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Case Summary
Considering the period mentioned in the case (i.e. 2011), Infineon Technologies is having a huge net cash reserve of €2.4bn. The problem faced by the management was on how Infineon should manage the cash reserve. The case has various aspects to analyze and understand. Being a capital intensive business, it is critical that Infineon has a good cash management strategy in place.
Infineon Technologies- semiconductors manufacturing company is a capital intensive business. A huge cash reserve in a certain way is an advantage to Infineon, if they manage to utilize the reserves at right time for R&D. During a downturn, such organizations can utilize the cash reserves to invest in R&D to innovate and sustain business. In such companies, R&D plays a major role.
1. Considering the context of Infineon Technologies, identify two disadvantages of having too much cash which according to you are the most important ones.
Constant high levels of cash sin balance sheets may signify that the management is not making right decisions in investment and utilization of cash reserve. It can also impact organizations the cost of losing opportunities (opportunity cost) especially when the cash in not used appropriately in time.
With high cash reserves, the management may also tend to make wrong decisions of utilizing the cash reserves for capital expenditures which will impact the cost of capital for the organization. In fact the organization can raise a loan in such scenarios which will in turn provide tax benefits to the company. The debt volume can be decided keeping in mind enough cash reserves to sustain the business and in a way that the tax burden is reduced.
The cost of retaining the cash in bank can also attract taxes especially considering the wide foray of regions that Infineon is currently spread across. The organization will end paying out the interest
Infineon Technologies Time to Cash-in your Chips
-
Submitted by Girija Shetty (GS12338)
-
Case Summary
Considering the period mentioned in the case (i.e. 2011), Infineon Technologies is having a huge net cash reserve of €2.4bn. The problem faced by the management was on how Infineon should manage the cash reserve. The case has various aspects to analyze and understand. Being a capital intensive business, it is critical that Infineon has a good cash management strategy in place.
Infineon Technologies- semiconductors manufacturing company is a capital intensive business. A huge cash reserve in a certain way is an advantage to Infineon, if they manage to utilize the reserves at right time for R&D. During a downturn, such organizations can utilize the cash reserves to invest in R&D to innovate and sustain business. In such companies, R&D plays a major role.
1. Considering the context of Infineon Technologies, identify two disadvantages of having too much cash which according to you are the most important ones.
Constant high levels of cash sin balance sheets may signify that the management is not making right decisions in investment and utilization of cash reserve. It can also impact organizations the cost of losing opportunities (opportunity cost) especially when the cash in not used appropriately in time.
With high cash reserves, the management may also tend to make wrong decisions of utilizing the cash reserves for capital expenditures which will impact the cost of capital for the organization. In fact the organization can raise a loan in such scenarios which will in turn provide tax benefits to the company. The debt volume can be decided keeping in mind enough cash reserves to sustain the business and in a way that the tax burden is reduced.
The cost of retaining the cash in bank can also attract taxes especially considering the wide foray of regions that Infineon is currently spread across. The organization will end paying out the interest