Finance & Strategic Management and International Financial Management

Finance manger, along with his team of experts contributes significantly in the
process of strategic decision making.
1) The investment
decision
The investment decision is concerned with allocation & reallocation
of capital to projects, products, assets & divisions of an
organization.
2) Financing
Decision
This is concerned with determining the best financing mix or capital
structure for the organization.
3) Dividend Decision Involve such issues as the percentage of earnings paid to the
shareholders, the stability of dividend paid over the period and the
repurchase or issuance of stock.

Financial Policies
The value of owner’s wealth depends upon…
1) Their expected future cash flows.
2) The dispersion of possibly flows around the expected value – return
various risk.
Decision that affect earning power & financial leverage may affect both these
factors.
 Planning & Managing Assets
1) Management of Cash
2) Management of Accounts receivables
a) Management of Inventory
b) Capital Budgeting
3) Source of Finance
a) The external sources of finance
b) The internal sources of finance
4) Capital Structure
5) Dividend policy
1) Management of Cash
Management of cash brings into sharp focus on the trade off between risk &
return faced by the financial manager.
There are 2 stages of cash management…
a) Cash should be managed & near cash efficiently.
The waste can be reduced.
This stage includes efficient management of near cash in order to produce
the highest return consistent with a low risk.
b) Efficient handling of cash flows & balances, the principal task of cash
management can be taken up.
2) Management of Accounts Receivables
The management of accounts receivables involves many complex &
interrelated decisions.
These decisions involve risk & uncertainty.
The company does not know clearly when the customer will pay.
2A) Management of Inventory
Investment in inventories is costly & also a risk of loss.
The management should not reduce the idle stock to zero level.
Some stocks must be maintained to allow for unforeseen changes.
Some stocks are maintained to meet forthcoming demand.
2B) Capital Budgeting
Capital budgeting probably spells the difference between success & failure for
many business firms.
The methods of capital budgeting are net present value & discounted rate of
return.
Major policies are…
a) Source of Finance & Capital Structure Scissions
b) Investment Decisions
c) Financing Decisions & Dividend Policy
3) Sources of Finance
Strategy implementation fundamentally requires financial resources.
3A) The external sources of finance include…
Equity capital Public Deposits Long term loans from development banks
Preference Capital Bill Discounting Short term public deposits
Debenture Capital Overdrafts Factoring issues of commercial paper
Cash credits Loans from non banking financial companies
3B) The internal source of finance include…
This reserves of the company for long term purposes & bank balances & cash
on hand with the company for short term purposes.
4) Capital Structure
These decisions are concerned with the optimum mix of equity capital & debt
capital.
The operating leverage or the proportion of fixed costs in the operating cost
structure.
The factors ….
a) Overall weighted cost of capital.
b) The debt capacity of the firm in terms of adequacy of cash flows to meet the
fixed interest rate burden & principal amount.
c) The need for flexibility in the capital structure should also be considered in
deciding the capital structure.
5) Dividend Policy
The proportion of profit to be distributed to shareholders as dividend & the
proportion of the profit retained in the company as reserves.
This decision is affected by factors like…
a) The shareholders preference as to current dividend income against capital
gains.
b) The reinvestment opportunities & financial needs of the company.
c) Need for stability of dividend distribution.
d) Advantages & disadvantages of cash dividend & stock dividend.

International Financial Management
Most of the experts are of the view that an organization having at least 50 % of
its total profits from international operations do require efficient utilization of
their financial resources.
The environment relates to political risk, Governments tax & investment policy,
foreign exchange risks, sources of finance, etc.

Reasons for Investing Abroad
Qualifying the parameters for a project abroad is more complicated because of
disparities in currency exchange rates, tax structures, accounting practices &
factors affecting risk.
1) Reducing
risk
This implies that the degree of risk is different in different countries.
It has been observed that international diversification is often more
effective than domestic diversification.
2) Higher
returns
Investing abroad is the expectation of higher returns for a given risk
level.
The labor & other associated costs may be less in a foreign country –
simply to operate at lower cost, which increase the profit.
3) Tax Benefits A multinational enterprise is exposed to various tax laws due to its
operations in different countries.
4) Seeking
political
stability
The government policy provides the biggest threat to the existence of
a multinational organization.
Political risk may range from regular interference to complete
confiscation of company’s assets.

Basic Problems in Financial Management
1) Foreign
Exchange
Fluctuations
The transactions necessarily involve currency of those countries.
The fall in value or devaluation may affect future sales, costs &
remittances.
2) Financing Facilities
The major area of concern for the FM is rising funds on as favorable
terms as possible.