Strategic financial management means not only managing a company's finances but managing them with the intention to succeed—that is, to attain the company's goals and objectives and maximize shareholder value over time.
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However, before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals. Strategic financial management is about creating profit for the business and ensuring an acceptable return on investment ROI.
Financial management is accomplished through business financial plans, setting up financial controls, and financial decision making. When a company is managing strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term vision. If a company is being strategic instead of tactical, then it makes financial decisions based on what it thinks would achieve results ultimately—that is, in the future; which implies that to realize those results, a firm sometimes must tolerate losses in the present.
Part of effective strategic financial management thus may involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through closing facilities or reducing staff, thereby decreasing its operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but which position the company better to succeed in the long term.
These short-term versus long-term tradeoffs often need to be made with various stakeholders in mind. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions. A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and using them efficiently.
Here a firm needs to be creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals.
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However, some of the more common elements of strategic financial management could include the following. Just as financial management strategies will vary from company to company, they also can differ according to industry and sector. Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing gross revenue within the next 12 months.
On the other hand, companies in slow-growing industries—like sugar manufacturing or coal-power production—could choose objectives that focus on protecting their assets and managing expenses, such as reducing administrative costs by a certain percentage. Financial Analysis. Corporate Finance. Series Strategic success Subjects Business enterprises -- Finance.
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Corporations -- Finance. Financial management. Summary An accessible, practical and easy to understand guide, Financial Management for Non-Financial Managers shows managers how to gain confidence in understanding financial matters, managing a budget and dealing with bankers, accountants and finance professionals. A source of expert advice on all the essential aspects of financial management, it covers: business structures, accounting and financial statements, analysis and ratios, planning, budgeting, product and service costing, setting selling prices, investment appraisal, finance and working capital, taxation and international transactions.
Supported by worked examples, online templates and extensive case studies, this book is a valuable resource for managers who need to be able to make sound strategic financial decisions. Contents Machine generated contents note: 1. Types of business structure and their finance Sole proprietors Partnerships: general and limited liability Corporations A company limited by shares Limited companies Public limited companies Summary 2.
Financial management for non-financial managers / Clive Marsh. - Version details - Trove
The role of the accounting and finance department Financial accounting, payroll, budgeting, management accounting, taxation, treasury Accounting and finance department relationships 3. Accounting and financial statements Double entry system and ledgers Trial balance Profit-and-loss account Balance sheet Classification of assets and liabilities Source and application of funds statements Principles: matching, accruals, deferrals, consistency, conservatism, accounting periods, materiality, going-concern concept, form and substance, full disclosure and clarity Accounting and the environment Neuroscience and accounting 4.
Analysis and financial ratios Ratio analysis Contents note continued: Gross profit percentage Net profit percentage Current ratio Liquidity ratio Stock-turnover ratio Debtors' days Fixed assets turnover ratio Gearing ratio Return on capital employed ratio Return on equity: earnings per share The price earnings ratio PER Earnings yield Dividend cover Dividend yield 5.
Planning and budgeting The planning and budgeting process Departmental budgets and variance analysis Key budgets: sales, production, materials, labour, overheads, capital Some key departmental budgets The direct materials budget Capital budgets Capital rationing 6. Product and service costing and pricing Types of cost: fixed, variable, semi-variable Total cost and unit costs Contribution, break-even point and marginal costing Absorption costing standard costing Activity-based costing ABC Selling prices and the sales mix Contents note continued: 7.
Setting selling prices and marketing strategies Pricing strategies 8.
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Finance, funding and working capital Finance and working capital Short-term funds: overdrafts, short-term loans, invoice finance, trade credit, managing stocks Leases: short term long term Term funding and long-term finance: optimal gearing, equity funds, ordinary shares, preference shares, debentures, bonds, convertibles, notes, subordinated debt, Eurobonds, commercial mortgages, venture capital, derivatives Export finance: bills of exchange, letters of credit, export credit guarantees Using retained earnings as a source of funds Bank relationships Covenants Contents note continued: Financing entrepreneurial thinking and venture capitalists Interest-rate risk Financial markets International transactions and currency risk Buying or selling foreign currency Foreign exchange risks Foreign currency accounts Forward exchange contracts Hedging using the money market Currency futures Currency options Currency swaps Invoicing in domestic currency Advance payment Matching Intra-group trading Export invoice finance Single Euro Payments Area Direct Debit Scheme Company taxation and financial management Direct and indirect taxation Taxes on companies and corporations VAT and GST Taxes on the earnings of employees Global tax planning Double-taxation relief Transfer pricing Bringing taxation into the decision-making process Taxation and the economy: future trends in tax collection The value of a business Contents note continued: Building value Methods of valuing a business Financial strategy Elements of a financial strategy Strategic financial management Dividend policy Influences in dividend policy Dividend policy theories Ways of paying dividends Case studies Case 1 Misuse of short-term funds with disastrous consequences Case 2 Foreign exchange hedging v speculation Case 3 Stock valuations and profits Case 4 Bank loans and covenants Case 5 Separating money transmission from a lending bank Case 6 Credit ratings and fundamental analysis Case 7 Advantages and disadvantages of internal charging Case 8 Marginal costing v full absorption costing Contents note continued: Case 9 Overtrading: profits but no cash Case 10 Integrating the planning and budgeting process, leading to outsourcing Case 11 Government deficits and cost cutting Case 12 A 5 per cent increase in sales is generally worth more than a 5 per cent reduction in costs Case 13 Large capital projects and cost control: critical path analysis and integration with mainstream accounts Case 14 A mass of figures just makes life more complicated Case 15 High levels of fixed costs when income is variable can cause failure Case 16 Interest rates and inflation.
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