“Understanding Strategic Corporate Finance: Managing Investments, Capital Structure, and Cash Flow for Business Success”

Introduction to Strategic Corporate Finance

Strategic Corporate Finance is the extension of principles of financial management applied to organized form of business let take an example of starting a new business venture you put investment into assets of the firm to start this new Venture with this investment you purchase raw material for the production you arrange labor and other production facilities you acquire other productive Assets in order to produce goods or services for your external market then you produce and sell Goods in the market now this activity are a group of activities generates cash inflows and cash outflows for the business firm now there is a problem of mismatch between these two types of cash in cash flows remember these cash flows are the tools that a firm uses in order to create value for its owners

Understanding the Balance Sheet Model Strategic Corporate Finance

to understand more Strategic Corporate Finance corporate finance let take an example of balance sheet model of the firm on the screen you can see two different Strategic Corporate Finance the left side carries long-term assets and short-term assets short-term assets may include stock or inventories receivables and cash whereas the long-term assets may include tangible and intangible assets both these are the Investments made by the farm on the right hand side you can see liabilities and stockholders Equity there are two type of liabilities the first is current liabilities that may include accounts payable short-term notes payable or tax payable whereas the other liabilities are the long-term debt the third part of the right hand side is the shareholders equity and this is the residual that left over after paying all liabilities to the externals by The Firm from its assets this shareholder Equity may include share capital or reserves and retained earnings so if we classify these liabilities into the timings we can say that long-term debt and the shareholders Equity are the long-term sources and current liabilities are are the short-term sources from these two types of sources accordingly The Firm develops shortterm meets and long-term meets if we talk about financing approach of the firm then we can say that the both shortterm and long-term sources are used as a financing means in order to the acquisition of shortterm and longterm assets so the financing becomes equal to the investment

Key Questions in Strategic Corporate Finance

now Corporate Finance looks to answer three different questions the first that what is the composition of Assets in this composition we see the composition of fixed assets into tangible and intangible now further the composition talks about Corporate Finance the mixture of tangible assets that what would be the proportion of property plant Furniture building and other long-term assets this composition of long-term assets depends upon the nature of the business and this decision is commonly known as capital budgeting to acquire these assets we have to get certain sources these sources may be long-term date and shortterm date share holders Equity or the all now the firm has to decide what would be the proportion of Deb and the owner’s equity and this decision is belonging to the capital structure so the firm has to decide the capital structure it wants to develop the third important question Corporate Finance may ask is the working Capital Management as we know that working Capital Management is the difference between current assets and current liabilities so how the networking Capital would be managed this is the question that can be answered in corporate finance

Working Capital Management and Cash Flow Mismatches Strategic Corporate Finance

dear students while talking about the networking Capital Management we talk about oper ating cash flows because these are the cash flows that are generated in the operations while using current assets and managing current liabilities now there is a problem that the firm while generating cash inflows and outflows during a particular period of time there is a mismatch between cash inflows and cash outflows and that mismatch is due to the timings and amounts of the cash flows for example when we talk about timings we can take an example that you can take maximum 17 days to pay your creditors while you allow your daters to pay back you after 20 days so you are making payments to your creditors 3 days earlier so there is a gap of 3 days between your cash inflows and cash outflows now let’s talk about the amounts of the cash inflows and cash outflows let assume you can get a discount of 2% from your creditors if you make payment within the discount period but you are forced to offer a discount of 3 and half% to your daters in order to make payment to you so while you get certain amount in terms of cash inflows and you pay this amount in terms of cash outflows there is a difference of amounts you are receiving a lesser amount while you are paying a higher amount so this is the problem that calls about the short-term finance a finance manager has to create a balance and to fill this gap between cash inflows and cash outflows from balance sheet perspective we call this Gap as networking Capital management or simply working Capital Management but from Financial point of view or Finance point of view this Gap is called as mismatching of cash inflows and cash outflows and an ideal finance manager has the ability to cover this Gap efficiently and effectively.