Chapter 1 - Strategic Financial Decision Making

company’s strategy

is the coordinated set of actions that
its managers take in order to outperform the company’s competitors and achieve superior profitability.

Business Model Elements: The Profit Formula

V – the value provided to customers.
P – the price charged to customers.
C – the firm’s costs.

What Makes a Strategy a Winner?

• Fit Test

• Competitive Advantage Test

  • Performance Test

The fit test

Does it exhibit good fit with the external and internal aspects of the firm’s dynamic situation/

The competitive advantage test.

Is it likely to result in a sustainable competitive
advantage?

The performance test.

Is it producing superior performance, as indicated by the firm’s profitability, financial and competitive
strengths, and market standing?

Strategic Financial Management Deals with

• Investment Decisions

• Financing Decisions

• Liquidity Decisions

• Dividend Decisions

  • Profitability Decisions

Types of Management

• Strategic

• Operational

  • Tactical

Heirarchy of the Managment

Elements of Strategic Financial Management

• Planning

• Budgeting

• Assessing & Managing Risk

• Establishing decision making processes

  • Creating codes of ethics and code of conduct

Budget

is a detailed quantitative plan for acquiring and using financial and other resources
over a specified forthcoming time period.

budgetary control.

The use of budgets to control an organization’s activities is known as.

Risk

has been defined in various ways across time. Some definitions focus on the probability of an event, others refer to the uncertainty of outcomes, positive or negative, and others to risks as the subset of uncertainty that can be quantified.

Components of Strategic Planning

• Vision

• Mission

• Goals

• Objectives

Financial Planning Model

• Sales Forecast

• Pro-Forma Statements

• Asset requirements

• Financial requirements

• Economic Assumptions