Financial Strategy, Second Edition

Introduction

Janette Rutterford

It has long been acknowledged that finance plays a vital role within the organisation, with accounting systems designed to help organisation decision-making and control, and financial techniques, such as discounted cash flow, providing tools for valuing projects and investments.

However, in recent years, it has become clear that financial strategy on its own can have a major impact on organisations. For example, choosing the right capital structure can add value, independently of production or marketing decisions. Private equity firms are able to add value simply by buying companies and restructuring their finances. Derivatives can be used to alter the risk-return profile for risks such as currency, interest rate or credit risk, to suit individual organisations' risk and return preferences. The valuation of a new issue can vary according to the state of the stock market. This book will outline the major ways in which financial strategy can add value, looking in particular at adding value through investment decisions, financing decisions and risk management decisions.

Most finance texts concentrate on either accounting or finance and fail to recognise the dilemma facing managers in practice. This is how to motivate managers and employees and measure their performance internally, at the same time ensuring that the performance is valued by external stakeholders, such as creditors and shareholders. Internal performance measures have typically been accounting-focused, ...