Corporate Financial Strategies and Risk Management

Flashcards covering key concepts in Corporate Financial Strategies and Risk Management.

Corporate Financial Strategies

Long-term plans focused on financial growth, capital allocation, and risk management that guide major financial decisions influencing a firm's value and sustainability.

Capital Structure

Refers to choosing between debt and equity to finance operations or expansion.

Debt

Lower cost due to tax shield, but increases risk.

Equity

No repayment obligation, but dilutes ownership.

Optimal Balance

Minimizes Weighted Average Cost of Capital.

Impact of JFC's acquisition of The Coffee Bean & Tea Leaf

Short-term increase in leverage; long-term expansion into global markets. Strategic move to diversify and scale.

Too Much Debt

Risk of default.

Too Much Equity

Lower returns to shareholders.

DCF

Discounted Cash Flow

Financial Risk

Potential for loss due to market variables.

Market Risk

Price volatility (e.g., fuel, interest rates).

Credit Risk

Customer defaults.

Liquidity Risk

Inability to meet short-term obligations.

Hedging

Using futures or swaps.

Mergers

Combine equals to form synergy.

Acquisitions

One company absorbs another.

Restructuring

Change in business operations, often for efficiency.

Motives for Mergers, Acquisitions & Restructuring

Cost synergy, Market expansion, Tax optimization, Survival

Strategic Financial Decisions

Choosing between debt/equity for a new project, expanding into high-risk/high-reward markets, hedging against inflation or FX movements.

Framework for Strategic Financial Decision-Making

Use SWOT + Financial Metrics Scenario planning for best and worst cases Align with shareholder value creation