FINANCIAL MANAGEMENT
- One of the key areas of financial management is the management of the resources
- An important resource being the assets that are employed by the business
- They are a potential driver of shareholder wealth and value
Capital investment
- This is the name given to describe the purchase or creation of assets
- The objective being to yield future gains (over a period of time)
- These gains must represent the present day values of future cash flows
- The investment should provide market and economic added value to the owners
- Capital investment represents one of the most important long-term strategic decisions for any form of business
FACTORS TO CONSIDER
- The scale of the proposed project
- Can the business afford the cost? (known and forecast)
- When will the capital project start to generate a return on the investment?
- What is the opportunity cost?
RISK V RETURN
- The proposed project represents a risk to the:
- Wealth of the business
- The shareholder value
- The continuation of the business as a ‘going concern’
Let us stop and consider the wider picture
- The development of the Corporate strategy –
- The formulation: Analysis of the external environment (E.G PEST and SWOT analysis)
- Identification of possible strategies to adopt
- Testing against 3 key standards
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