The company has also to resolve another issue – how much is to be paid as cash dividend and how much as stock dividend (bonus shares). When companies fail to collect the receivables, sells such receivables to specialized firms. iii. Selection of investment—types of securities, selection of industries, selection of companies. It also meets the unexpected adversities and is useful for exploiting favourable opportunities. Established firms nowadays identify a tracking stock, which is a type of common stock but tied to only one portion of the total business. There are two major sources of funds. In a leveraged buyout, a company is acquired in a transaction, which is mainly financed by funds arranged from a third party such as a bank or financial institution. There are many financial activities and decisions that may influence strategic planning. The management should bear in mind environmental factors such as – general condition of economy, state of capital markets, state regulations and tax policy. Studies also point out that diversification strategy mainly influences the financial strategy. Capital structure decisions require a reasonable mix of debt and equity capital. The finance manager balances these conflicting objectives of inventory management. To use this method, divide the market price of the firm’s common stock by the annual earnings per share and multiply this number by the firm’s average net income for the past five years. Implementation of projects under the expansion and diversifications strategies results in increase in capital expenditures. ii. The greater the risk to shareholders or lenders, the greater the return these investors will require. The second approach is based on largely the future benefits business owners may derive through net profits. (ii) Another influencing factor may be the gestation period. Basically, it outlines the steps you need to take to grow your business and reach your financial goals. For example, you may be looking to save up money for a down payment on a home to accommodate your growing family. Next dimension of financial strategy is the leveraged buyout. An investment operation is one which upon thorough analysis promises safety of principal and a satisfactory return. It cannot be acquired like a subsidiary as it is tied to parent company. He has to decide about the optimal financing mix (mix of debt and equity) or capital structure of the organisation. They are external sources and internal sources. Theoretically, an enterprise should have enough debt in its capital structure to boost its return on investment, but too much debt in the capital structure of an organization can endanger stockholders’ return and jeopardize company survival. Financial strategy deals with areas such as financial resources, analysis of cost structure, estimating profit potential, accounting functions and so on. the economic (and social) purposes for which the business exists; strategy is the means used to attain these goals. First, base the firm’s worth on the selling price of a similar company per unit of its capacity, if similar transaction happened recently. It’s a port in the storm. Thus, appropriate dividend’s strategy enables the firm to reduce the cost of capital, minimise risk, and enhance the shareholders’ value. Cash management deals with cash flows into and out of the company, cash flows among different departments of the company and cash balances held by the company to finance the deficits or to invest the surplus. If cash inflows and outflows were perfectly synchronized and could be forecasted with certainty, a company would need no cash balances at all. Every business enterprise needs two types of finances – (i) Long term and (ii) Short term. Finally, risk must be ascertained. This can create an optimum mix of debt and equity capital in order to minimize the various risks involved in excessive borrowing. The risk principle suggests that such a pattern of capital structure should be devised so that the firm does not run the risk of bringing on a receivership with all its difficulties and losses. (b) ‘Production’ and selling costs—both made up of fixed and variable elements. In addition, inter-corporate investments are also considered as part of the sources of finance. Having a solid financial strategy, building buffers and managing cash will allow the business to withstand unexpected financial … Financial planning is done in order to achieve the set financial objectives. Such forecasts enable the management to know in advance the cash status of the organization at different points of time and thereby aid them in evolving suitable strategy. Evaluation of capital expenditure proposals in terms of cash flows. Based on these forecasts, various budgets can be prepared. For effective utilization of cash, the strategies fall under two major categories: a. Macroeconomic factors can affect your clients’ ability to pay off their debt. Managing for value is concerned with maximizing the long-term cash-generating capability of an organisation. Capital budgeting strategy involves the following phases: a. cost of acquiring the capital. In short, financial strategy deals with the availability of sources, usages, and management of funds. Second, financial budgets can become a substitute for objectives. Sample Financing Strategy The following document was created by Mango for training purposes. This is determined by –. ii. The business risk should be balanced with the financial risk to the organisation. 2. the principles of financial management and strategic management to real business situations and for this case studies in these area would prove to be of immense use. These can be compared with the same ratios for a previous time period in order to evaluate any change in the financial position. vi. c. Companies should adopt a flexible structure in order to adapt the structure to the economic situations. Classification of capital expenditure proposals. In short, financial strategy deals with the availability of sources, usages, and management of funds. This practice is called ‘factoring’. Strategic financial analysis is a powerful, value-creating framework that helps senior executives assess strategy, analyze performance, and value a business. Functions 7. Financial management is nowadays increasingly referred to as "Strategic Financial Management" so as to give it an increased frame of reference. For developing financial strategy following questions pertaining to financial management are required to be answered: 1. Ensure continuous supply of raw materials to facilitate uninterrupted production; II. Account Disable 12. It sets out how the organisation plans to finance its overall operations to meet its objectives now and in the future.A financing strategy summarises targets, and the actions to be taken over a three to five year period to achieve the targets. The position will not change materially if the inventories have been sold on credit. 3. Overall, managers need to be conscious of the financial impact on various stakeholders of the strategies they are pursuing or planning to pursue. The major factors regarding in this which have to be made by strategists are: ii. The financial expectations of stakeholders will vary —both between different stakeholders and in relation to different strategies. Financial strategy deals with areas such as financial resources, analysis of cost structure, estimating profit potential, accounting functions and so on. This should influence managers in both strategy development and implementation. External – The external sources of funds may consist of equity capital and/or borrowed capital. Difference between current assets and current liabilities is called net working capital. Debt brings greater financial risk than equity since it carries an obligation to pay interest. It is treated like a subsidiary. (b) Debt-equity ratio – It is required to be maintained while raising additional capital. A conservative rule of thumb is to establish a business’s worth as five to ten times the firm’s current annual profit. Cost of capital and equity financing. Debt capital though, requires the payment of a fixed interest regularly, provides huge surplus during the periods of business boom. From this angle, debt should occupy a prominent place in the capital structure of an organization because it is the cheapest source of financing. Dividend strategy balances the current return and capital gains. Financial strategy should, therefore, provide a specific technique with which to choose the most useful proposal for the firm. The financing strategy for a small business depends significantly on what the company is trying to accomplish, what its financial structure looks like and what the money will be used for. The R.B.I, has laid down 2 : 1 and in certain cases 3:1. But keeping any excess stock of cash is largely a waste of resources because it is a non-earning asset and the same could be invested elsewhere to earn some income, i.e., the firm will fail to maximize its profits at the expense of high liquidity. Identification or origination of investment opportunities based on corporate strategy and business unit level strategies; b. 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