Finance theory and financial strategy

Finance Theory & Financial Strategy

To explain this further, a proposal could have a negative impact from the Discounted Cash Flow analysis, but if it is strategically beneficial to the company this decision will be accepted by the financial managers over a decision which has a positive impact on the Discounted Cash Flow analysis but is not strategically beneficial.

The marketing department should be able to determine the acceptance of the product, the pricing level, the market segmentation and niche, and desired attributes. Inventory management[ edit ] Which are stocks of manufactured products and the material that make up the product, which includes raw materials, work-in-progress, finished goods, stores and spares supplies.

Profitability management[ edit ] As a more minor role under this section; it comes under investment decisions because revenue generated will be from investments and divestments.

Strategic financial management

It may actually have a relatively high cost for a firm to diversify into another industry either through acquisition or start-up. This impact is dramatic and favorable as compared to the financing decision.

Increasing value on the Discounted Cash Flow Analysis but must also consider uncertain, unquantifiable factors which could be strategically beneficial. On the other side, they may need larger projects to make a significant contribution to the firm.

The basis of the theory is that debt capital used beyond the point of minimum weighted average cost of capital will cause devaluation and unnecessary leverage for the company.

Financial analysis can utilize that information to provide strategic planners into profit levels, NPV, cash flow, etc.

Component of a financial strategy[ edit ] When making a financial strategy, financial managers need to include the following basic elements. The main indicator to be used here is the net working capital: Dividend decisions[ edit ] Financial managers often have to influence the dividend to 2 outcomes: You can make much more money through smart investment decisions than smart financing decisions.

This is one of the most crucial financial decisions for a firm. This led to decision making and allocation of resources inline with this strategy. Often it is a plan for one year but more typically 3 to 5 years if a longer term view is taken. Receivables management[ edit ] Which includes investment in receivables that is the volume of credit sales, and collection period.

One idea is to look at each project as its own mini-firm, an all equity project or company Myers pg. But the company will also need to retain profits to be reinvested so more profits can be made for the future. Weighted Average Cost Of Capital. Myers believes that most strategic planners are not well schooled in the tools of modern finance pg More elements could be added, depending on the size and industry of the project.

Yet there is not any favorable market response to being diversified.

Senior management sets a direction, vision and mission statement based upon who the firm is now and how it has evolved. The ratio as which this is distributed is called the dividend-pay out ratio.

Financing decisions - concerns the optimal levels of each financing source - E. Investment decisions[ edit ] For a financial manager in an organisation this will be mainly regarding the selection of assets which funds from the firm will be invested in. Some techniques used in strategic planning includes: Debt - Equity ratio.

This is also beneficial to the shareholders for growth in the value of shares and for increased dividends paid out in the future. This infers that it is important for management and shareholders to agree to a balanced ratio which both sides can benefit from, in the long term.

Will the project contribute to the bottom line or will it cost money. For a retail business, for example, this will be a major component of their current assets.

Financing decisions[ edit ] For a financial managers, they have to decide the financing mix, capital structure or leverage of a firm. For new business ventures and those started by existing companies.

Being able to be positive and negative, indicating the companies current financial position and the health of the balance sheet. Although this is often an exception for shareholders who only wish to hold for the short term dividend gain. Larger companies may not be limited to the number and scope of projects as smaller companies are.

It appears to be somewhat haphazard in many cases. Decision making[ edit ] Financial manager often uses the Theory of capital structure to determine the ratio between equity and debt which should be used in a financing round for a company.

Finance Theory I

Credit policy which includes credit standards, credit terms and collection efforts. Yet the stock holder seems to have a lower cost to diversify:To sharpen the financial analysis, the managers returned to the marketing strategy and delved deeper into it.

Now the financial analysis helped clarify the marketing issues to. Free Essay: Myers, S.C. (). “Finance Theory and Financial Strategy”. Interfaces, Introduction This journal explained how to bridge the gap between.

Finance Theory & Financial Strategy By Stewart C Myers How do firms integrate strategic planning and financial analysis? It appears to be somewhat haphazard in many cases.4/4(1). Finance Theory and Financial Strategy Created Date: Z.

Financial theories are the building blocks of today's corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment.

Many of these theoretical concepts such as general equilibrium analysis, information economics. Free Essay: Finance Theory & Financial Strategy By Stewart C Myers How do firms integrate strategic planning and financial analysis?

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Finance theory and financial strategy
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