Introduction to Strategic Financial Management NIHAR DALAL BE MBA(FIN) MS(FIN) CFA
What is Strategic Financial Management • Applied Corporate Finance with an emphasis on firm valuation. • In corporate finance, we talk about three major decisions a firm faces • With applied corporate finance, we talk about how those decisions can be implemented in the real world • In Strategic Financial Management (SFM from here on), we focus on how those decision impact firm value • So what are those three decisions? Why are they “strategic”? And why do we measure those decisions against firm value
The Three Decisions
The Three Decisions and the Cash Flow Statement • The Investing Decisions (CFO and CFI) • The Financing Decision (CFO and CFF) • The Dividend (Capital Allocation) Decision (CFO, CFF and CFI)
The CF Statement and Firm Value • Value of the firm is the PV of the cash flows • More precisely the value of the firm is the PV of free cash flows • What is free cash flow and how do the three decisions impact it?
The Investing Decision and the FCF • Free cash flow is defined as some measure of profitability adjusted for the investments the firm makes for future growth • Higher investments lower current FCF but possibly increase the FCF going forward • The firm’s investments can be into fixed assets, working capital, R&D or acquisitions • The investing decision is an extension of the financing decision
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