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Sample Essay – Strategic liabilities

The 2007 recapitalization of Domino’s made the Domino’s to remain with a huge amount of debts that are highly leveraged. In reference to the financial report for the financial year ending 2009, the long-term amount outstanding debts summed up to more or less of $1.57 billion. The securitized debts are not disallowed and this may make the firm to incur additional debts. The indebtedness has reduce the shareholders rate of returns in their investment in Dominos and the. The huge long term debts have made the firm:

To be greatly suffer the consequences of the global economic meltdown,

  • Direct some of its cash inflows to the payment of long term debts,
  • limit the elasticity of Domino’s as a result of limitation of resources,
  • have  inadequate resources for future development, implementation and evaluation of the strategic plans

The secured loans hinder the Domino’s ability to transform its operations, secure loans, sell idle assets, acquire or merge with other businesses and also impede transactions with other business affiliates. The securitized debts require Domino’s Pizza to uphold a certain preset financial ratio thereby controlling the firm’s commitment to paying dividends to shareholders. Though the ability to maintain a predetermined financial ratio may be influenced by forces beyond Domino’s Pizza control, a breach of this deal can lead to Domino’s amortization. Incase the debts swell and Domino’s Pizza is not capable to service the liability, the insurer may start to manage the securitized assets.

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