Finance: Capital Markets, Financial Management, and Investment Management

CHAPTER 10

Financial Strategy and Financial Planning

A company’s strategy plan is a method of achieving the goal of maximiz ing shareholder wealth. This strategic plan requires both long-term and short-term financial planning that brings together forecasts of the company’s sales with financing and investment decision-making. Budgets, such as the cash budget and the production budget, are used to manage the information used in this planning, whereas performance measures, such as the balanced scorecard and economic value added, are used to evaluate progress toward the strategic goals.

A business that is able to deploy its assets to the best possible use creates value and advances the efficient allocation of resources for society as a whole. Owners, employees, customers, and anyone else who has a stake in the business enterprise are all better off when its management makes decisions that puts its assets to their best use. But just as there may be alternative routes to a destination, there may be alternative ways to allocate resources. A strategy is a plan of action of how to reach an objective. And just as some routes may get you where you are going faster, some strategies may be better than others.

Suppose a company has decided it has an advantage over its competitors in marketing and distributing its products in the global market. The company’s strategy may be to expand into the European market, followed by an expansion into the Asian market. Once the company has its strategy, ...