Strategic Financial Management PDF

I. NATURE AND SCOPE OF STARTEGIC FINANCIAL MANAGEMENT CBMEC102 – STRATEGIC FINANCIAL MANAGEMENT Instructor: Via P. Herrera-Leal, MBA For Classroom Use Only. Introduction Financial Management is an integral part of overall management and not a staff function of the organization....

I. NATURE AND SCOPE OF STARTEGIC FINANCIAL MANAGEMENT CBMEC102 – STRATEGIC FINANCIAL MANAGEMENT Instructor: Via P. Herrera-Leal, MBA For Classroom Use Only. Introduction Financial Management is an integral part of overall management and not a staff function of the organization. It is not only restricted to fund raising process but also covers utilization of funds and monitoring/ controlling of the uses. In order to maximize the value of the enterprise, the finance function is concerned with the process of acquiring an efficient utilization of funds in a business system. For making right decisions, financial management needs to understand financial environment within which these decisions operate. Financial Management will then be able to analyze these information’s to predict likely future results and to plan more carefully their proposed course of action. Financial Management It deals with the various types of monetary decisions that must be made by the managers in a company, along with the tool and analyses used to make those decisions. Financial Management refers on the strategic planning, organizing, directing and controlling of financial undertakings in an organization or an institute. It also includes applying management principles to the financial assets of an organization, while also playing an important part in fiscal management. (London School of Business and Finance). Functions of Financial Management Financing Function- raising capital to support the firm’s operations and investment program. Capital Budgeting- selecting the best projects in which to invest firms resources, based on a consideration of risks and return. Financial Management Function-managing the firm’s internal cash flows and its capital structure. Corporate Governance Function- developing an ownership and corporate governance system that will ensure that managers act ethically and in the best interest of stakeholders. Risk Management Function- managing firm’s exposure to all types of risk. Strategic Financial Management Refers to the allocation of scarce resources to identified possible strategies among competing opportunities and taking necessary actions to monitor the progress of the chosen opportunity so as to achieve set objectives. It pertains to the identification of possible strategies capable of maximizing an organizations net present value., the allocation of scarce capital resources between competing opportunities and the implementation and monitoring of the chosen strategy so as to achieve objectives. Scope of Strategic Financial Management 1. Decisions regarding investments in the assets of the company: The most appropriate level and mix of assets. As a financial manager he/she will be responsible for providing valuable insights for making the right investment decisions for an organization. Decision regarding the treatment of dividends. 1. Decisions regarding how such investments should be financed: The optimum level mix of the funding requirements for the assets. The above main decisions will focus on providing answers to the following questions: a) Should a new factory be built for the purpose of producing ( and selling) a new product or should a company already involved in the production of such a product be acquired? b) Should an organization make particular component in-house or should it buy from the outside? Steps in Strategic Financial Decision-Making 1. Determine the objectives of the organization. 2. Identify all possible courses of action. 3. Collect, collate and record data in respect of each alternative course of action. 4. Analyze, summarize and present data in form suitable for decision making. 5. Arrive at a decision , taking into account quantitative, non-quantitative, social, cultural, normative , psychological factors etc. 6. Execute the decision, through pragmatic and coordinated action to actualize the plan. 7. Highlight the differences between planned and actual results. 8. Take necessary corrective action that will improve performance or lead to the adjustment of the original plan