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Strategic Management and Financial Policy

Strategic Management and Financial Policy

The inter face of strategic management and financial policy will be clearly understood if we appreciate the fact that the starting point of an organization is money and the end point of that organization is also money again. Offer of the organization is only a vehicle that links up the starting point and the end point. No organization can run the existing business and promote a new expansion project without a suitable internally mobilized financial base or both internally and externally mobilized financial base. The success of any business is measured in financial terms. Maximising value to the shareholders is the ultimate objective. For this to happen, at every stage of its operations including policy-making, the firm should be taking strategic steps with value-maximization objective. This is the basis of financial policy being linked to strategic management.
The linkage can be clearly seen in respect of many business decisions. For example :
i. Manner of raising capital as source of finance and capital structure are the most important dimensions of strategic plan.
ii. Cut-off rate (opportunity cost of capital) for acceptance of investment decisions.
iii. Investment and fund allocation is another important dimension of interface of strategic management and financial policy.
iv. Foreign Exchange exposure and risk management.
v. Liquidity management
vi. A dividend policy decision deals with the extent of earnings to be distributed and a close interface is needed to frame the policy so that the policy should be beneficial for all.
vii. Issue of bonus share is another dimension involving the strategic decision. Thus from above discussions it can be said that financial policy of a company cannot be worked out in isolation to other functional policies. It has a wider appeal and closer link with the overall organizational performance and direction of growth. Hence, the financial policy of a company is closed linked with its corporate strategy. The corporate strategy establishes an efficient and effective match between its competences and opportunities and environmental risks. Financial policies of a company should be developed in the context of its corporate strategy. Within the overall framework of a company’s strategy, there should be consistency between financial policies investment, debt and dividend.

Strategic Management and Financial Policy

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Strategic Management and Financial Policy

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