The role of Financial Management

The role of Financial Management

  • Test the FEASIBILITY of the proposed strategy
  • IS IT POSSIBLE TO PUT INTO PLACE?
  • Are the financial resources available?
  • It is likely that the strategy will require capital investment
  • How much and when?

CONT’D

  • Project the estimates of the relevant future cash flows generated by the project (incremental flows)
  • This projection would be presented as a full cash budget
  • This will reveal if the cash resources are available to fund the project
  • Does company need to raise more finance?

contd

  • Identify which type of finance is required short–term OR long-term?
  • If long-term what are the merits of issuing equity, issuing debt or raising loan facilities?
  • CONSIDERATION MUST BE MADE to the consequences of such a decision!
  • Think Mogdigliani & Miller – effect on cost of capital
  • Effect on shareholder wealth

MINIMISE THE RISK

  • Systems and procedures should be in place to minimise unsystematic risks
  • Investment appraisal is undertaken
  • 4 key investment appraisal techniques can be applied
  • Advantages of the payback period:
  • Simple concept to understand
  • Easy to calculate (provided future cash flows have been calculated)
  • Uses cash not accounting profit
  • Takes risk into account (in the sense that earlier cash flows are more certain in nature)

The Payback Period

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2015-01-18T20:41:23+00:00 July 8th, 2014|講義|