Corporate Restructuring and Strategic Financial Management CRSFM

Session II
Trimester VI

Functions of Finance

1. Investment 2. Financing 3. Liquidity

4. Dividends

Financial Management (FM)

FM pertains to the optimal sourcing and utilization of financial resources of a business enterprise.
- Sofat, Hiro

- Planning and control.

-Blend of management and finance.

-Traditional approach vs Contemporary approach

Generic Value Chain

Support activities

Primary activities

Strategic Financial Management (SFM)

SFM is the combination of two dimensions: 1. The financial implications of business strategies at every stage of the value chain. 2. The strategic management of the firms finances.

Strategic Financial Management (SFM)

SFM is an approach to management which links together financial management tools techniques and methodologies to strategic decision making in an effort to maximize the worth of the company in the future.

Strategic Financial Management (SFM).features

- Long term view of the financial management of a firm. - Profitability AND Wealth Maximization. - Integrated and holistic view of the organization. - Cohesiveness between the strategies and financial decisions of the firm. Helpful in corporate restructuring. - SFM uses quantitative analyses of financial management and quantitative+qualitative analyses of strategic management. - It considers costs (including wages) in a strategic perspective. - It trades off risk and return in financial topics as well as strategic decisions.

Example of issues:

ROI = Profit / Investment ROI = ( Profit / Sales ) x (Sales / Investment ) ROI = Profitability x Investment Turnover

Profitability depends on Sales, Fixed Costs, Variable Costs, Taxes, Interest

Investment Turnover depends on Fixed Assets and Working Capital Turnover

Example of issues:
What will happen if we drastically reduce fixed cost? What will happen if we drastically reduce inventory? What will happen if we drastically change credit policy?

Scope of SFM:
Main Areas: Strategic Investment Management Decisions (Value) Strategic Financing Management Decisions Strategic Liquidity Management Decisions Strategic Dividend Management Decisions

Subsidiary Areas: Valuation Strategic Risk Management Corporate Restructuring Financial Restructuring Strategic International financial management Strategic Compensation Planning Strategic Innovation others

Constraints with SFM?

Dependent on strategists choice.

Expertise vs Generalism
Resource Constraints Stakeholder expectations Inability to integrate and align

Shareholder Value Creation:

Concept of residual owner. Concept of Value maximization vs Profit maximization