FINANCE FOR STRETEGIC MANAGEMENT

Finance for Strategic Management



Contents

1. Role of financial information in business strategy1

1.1. Need for Financial Information1

1.2. Risks related to financial and business decisions1

1.3. Information required for Strategic Business Decision Making4

2. Analysis of financial statements for strategic decision making purposes5

2.1. Purpose, Structure, and Content of Financial Statements5

2.2. Interpretation of Financial Information6

2.3 Financial Ratio Analysis7

3. Assessment and finance non-current assets, investments and working capital9

3.1. Long and short term Financing9

3.2. Sources of Long Term and Short Term Financing9

3.3. Importance of Cash Flows10

3.4. Investment Appraisal Methods11

4. Different ownership structures and financial performance11

4.1. Corporate Governance, Legal and Regulatory Requirements11

4.2. Roles of Owners and Manager14

Finance for Strategic Management

1. Role of financial information in business strategy

1.1. Need for Financial Information

Financial Information entails the detail analysis and information about the company. It helps all the stakeholders to get a good understanding about the company. Creditors, Investors, Regulatory Bodies, Central Bank, Suppliers and government bodies can take information about the company. Financial information aides' investors' insight since they are better able to make decision about the investment. Their needs and wants must be kept in mind, and they must be given most importance (Kun, 2008, 219-227). It gives a complete picture of the company to various classes of society. The annual report includes not only the financial performance of the company, but the overall business information of the company. The main components of the Annual Report include Balance Sheet, Income Statement, Cash Flow, Financial Notes, Risk factors and Financial Highlights.

1.2. Risks related to financial and business decisions

The company is conventionally defined as a complex system, and open to its environment; due to which it is exposed to different risks. Risk identification and its management is an integral part of an organization's strategic management. From the time a business starts up to the time it is mature, the process of identifying risks and in the market and managing them through various instruments is a regular activity for successful business owners. The importance of risk management cannot be overstated. This is a fundamental part of doing business that must be addressed appropriately for the company to be successful. Different types of risks can be:

Credit Risk

Credit risk is the oldest form of risk capital markets. It is distinguished from the other two major types of risk that financial institutions are subject, market risk and operational risk. Market risk is the risk that the value of an asset (a debt) held (e) by a financial institution varies because of changing prices on financial markets. This risk takes many forms: currency risk (which changes the value of foreign currency assets of the institution), interest rate risk (which affects the value of the instruments of rates) or the actual market risk (which affects stock prices, in particular (Hodge, 2006, 267-292). For his part, operational risk is, as the Basel Committee (2001), "the risk of direct or indirect loss resulting from inadequate or failed due to procedures, staff, internal systems or external events." It therefore refers to the inefficiencies of the ...