You are on page 1of 8

Strategic Finance

What is finance?
Financial Management deals with the
decisions of a firm related to investment,
financing and dividend (Veshvanath)
To carry on business, a firm invests in
tangible assets like plant and machinery,
buildings, and intangible assets like goodwill
and patents. This comprises the investment
decision

Financing and Dividend decision

These assets dont come free; one has to pay


for them, so a company needs to tap various
sources of funds including shares, bonds, bank
loans. This forms the financing decision

The investment in assets generates revenues


and cash flows for a specific period of time. The
managers of the company can either retain
cash with the company for further investment
or distribute to the owners of the companythe
shareholders. This constitutes the dividend
decision

Financial Managers
Decisions

Which investment/s should the company accept


and what are the financial implications of
undertaking the same?

How should the company finance those


investments? What should be the mix of owners
contribution equity and borrowed funds, i.e., debt
at any given point in time?

How much of the income generated from


operations should be returned to shareholders in
the form of dividends and how much is to be
retained for further investment?

Financial decisions: Time perspective

Capital investment decisions are long-term


choices about which projects receive
investment, whether to finance that investment
with equity or debt, and when or whether to pay
dividends to shareholders

On the other hand, the short term decisions


can be grouped under the heading "Working
capital management".

This subject deals with the short-term balance


of current assets and current liabilities;

Working capital
management

The goal ofworking capital managementis to


ensure that a firm is able to continue its
operations and that it has sufficient ability to
satisfy both maturing short-term debt and
upcoming operational expenses. The
managementofworking
capitalinvolvesmanaginginventories, accounts
receivable and payable, and cash.

Objective of financial
managers
Finance theoreticians generally agree that the
objective of a firm is to maximize wealth
Whose wealth? whether it should be the
wealth of shareholders or the wealth of the
firm, which includes bondholders and
preferred stockholders

Shareholder wealth maximization rule requires


managers to work towards a sustainable
increase in the price of the firms stock

What is strategic financial


management

The identification of the possible strategies


capable of maximizing an organization's net
present value, the allocation of scarce
capital resources among the competing
opportunities, and the implementation and
monitoring of the chosen strategy so as to
achieve stated objectives

You might also like