Professional Documents
Culture Documents
Learning Objectives
Meaning of strategy and strategic planning process Environmental factors influencing business Strategic Financial Management and its importance Meaning and techniques of Financial Forecasting Financial Planning as to External funds requirement Computation of Internal Growth Rate and Sustainable Growth Rate Steps in Financial Planning process Steps in decision making and Problem solving process Financial Sector reforms Agency theory of Employment in relation to Strategic Financial Management Meaning and benefits of Limited Liability Partnership Definition, meaning and tests of Corporate Governance History of WTO
Contd.
Factors influencing at national level: Inflation rate Growth rate of GDP Tax rates Exchange rate of national currency Monetary and economic policy of government Government incentives and subsidies Rate of unemployment Availability of skilled manpower and technology
Contd.
Factors influencing at Organizational level: Nature and size of business Expected and market rate of return Asset and liability structure of the firm Efficiency of the management and its commitment Ownership pattern Technology adopted Attitude of the stakeholders over firm
Financial Forecasting
Financial forecasting is to prepare projected financial statements. Which helps making decisions like; - capital investment, - annual production level, - operational efficiency required, - requirement of working capital, - assessment of cash flow, - raising of long term funds, - estimated growth in sales etc.
Contd.
Projected funds flow statement: the projected fund flow statement shows the future sources of funds and its possible application. Projected cash flow statement: it is a detailed projection of income to be realized and cash expenses as well expenditure. Projected income statement and balance sheet: the projected income statement is prepared on the basis of forecast of sales and expenses. The projected balance sheet is also drawn based on the future estimation of raising or repayment of long term funds and acquisition or disposal of fixed assets and estimation of working capital.
Contd.
2. Internal Growth Rate (IGR):
IGR is the maximum growth rate a firm can achieve without going for external financing. All the financing requirements are met internally from the internal accruals. IGR = ROA*b / 1 (ROA*b)
Where,
ROA = Return on Assets (PAT/Total assets) B = Retention ratio (1- Dividend payout ratio)
Contd.
3. Sustainable Growth Rate (SGR):
SGR is the maximum growth rate which can be achieved using both internal accruals and external debt without increasing the financial leverage. SGR is the maximum sales that can be achieved in a year based on target operating debt and dividend payout ratio.
Decision Making and Problem Solving process Recognize problem Collect information Identify causes Specify problem \allocate priorities Examine resources Search for alternative Evaluation of alternatives Select best course of action Implement decision Results and control
Corporate Governance
Corporate Governance is the system by which business corporations are directed and controlled. It is a process or a set of systems and processes to ensure that a company is managed to suit the best interests of all. Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation and spells out the rules and procedures for making decisions on corporate affairs to achieve company objectives and in monitoring its performance.
Tests to analyze CG
Whether the company funds have been deployed for the main objectives of the firm? Whether the company has the core competence to effectively manage its diversification? Whether the personal properties of the directors have been let out at very high rent to the company? Whether the Companies Act, FEMA, Factories act are complied properly? Whether the internal controls in place are effective? Whether there is transparent financial reporting and audit practices and the accounting practices adopted by the company are in accordance with the accounting standards?