Financial Data, Strategic Decisions, and Risk Management in Business

This report examines the critical role of financial data in strategic management. It begins by identifying key sources of financial data, including income statements, balance sheets, and cash flow statements, and explains how these documents provide essential insights for making informed business decisions. The report emphasizes the need for financial data in formulating and implementing effective business strategies, highlighting the importance of analyzing financial statements to identify shortcomings and make necessary improvements. It also delves into the risks associated with financial decision-making, such as financial risk and business risk, and how these risks can impact business outcomes. Furthermore, the report explores various methods used for appraising capital expenditure projects, including Net Present Value (NPV), Internal Rate of Return (IRR), and payback period, explaining their significance in selecting high-yielding projects. Overall, the report underscores the importance of financial data analysis for strategic decision-making and risk management in business.

Finance for Strategic Managers

Sources of financial data
• Financial information is quite relevant to company so that it may be able to
take strategic business decisions in effective way.
• This contains various sources of financial data which help management to
assess the same and take enhanced decision for the betterment of
organisation.
• Among these, Income statement and balance sheet and cash flow statement
are categorised as main financial data from which company can easily
analyse performance and as such, management can implement well-
structured strategies in order to improve upon activities so that objectives
can be achieved in the best possible way.

Cont.
• Income statement
• It is quite useful source for management to take strategic
decision.
• Income statement provides expenditures incurred and income
earned for a particular period.
• This clarifies business in order to make well-structured
strategies so that more revenue may be garnered.
• Moreover, tasks should be achieved by initiating control over
expenses.
• Thus, management takes better business decisions.

Cont.
• Balance sheet
• It is another useful source of financial data as
it provides business clarity about how assets
and liabilities prevails at the end of accounting
period.
• Balance sheet is also known as statement of
financial position as it provides summary of
income and expenditures at the end of year.

Cont.
• Cash flow statement
• Cash flow statement is another source of financial
data which particularly imparts cash position of
business entity.
• It includes various activities such as operating,
investing and financing activities.
• This help management to assess liquidity position of
firm and analyse whether sufficient working capital is
there or not.

Need for financial data and designing of
strategy for business
• There is immense need of financial data in the business so that
strategies can be made and implemented in the best possible
way.
• This is quite important for organisation as without financial
data, management may not be able to analyse shortcomings
prevailing in the company.
• This implies that financial data has importance to management
so that necessary improvements may be accomplished in the
best possible way.
• Balance sheet is quite relevant as it imparts financial health of
organisation for a particular accounting period.

Cont.
• There is need for preparing balance sheet so that if assets are less in
quantity then liabilities, then business is required to implement corrective
action.
• This will help organisation to formulate strategy by restricting use of
liabilities and more usage of assets.
• Thus, solvency position can be enhanced in a better way.
• Income statement is also needed in business so that income and
expenditures can be effectively analysed in the best possible way.
• Operating results will be provided to management such as sales made,
expenses incurred, profit made or loss incurred.

Cont.
• This help managers to effectively analysed operating results and as such,
enhanced decisions can be taken to provide stockholders' maximum
benefit.
• Apart from this, cash flow statement imparts organisation to assess cash
position in effectual way.
• Working capital is required in order to accomplish daily operational tasks.
• Management evaluates need of extra working capital by initiating
strategies to have effective current assets in order to pay short-term
liabilities.
• Thus, financial data help company to formulate strategies in effectual
manner.

Risks associated with financial
business decisions
• There are several risks which are associated with making business
decisions.
• In relation to this, financial risk and business risk are major affecting
business decisions.
• Financial risk is associated with company's ability to produce profit so that
it may be able to pay-off debts within stipulated time.
• This is required in order to meet liabilities in effective way and decreasing
operational expenditures.
• When expenses are more, then probability of risk prevails in the
organisation.
• Thus, it is required that debt and financial leverage should be effectively
used so that risk may be minimised.

Cont.
• Financial risk affect business decisions in various ways.
• Among these, expected returns are not in congruence to actual results that
initiate risk in the organisation.
• Furthermore, degree of capital structure of business which may support for
healthy profits.
• Risks are required to be forecasted so that it may not affect organisation
quite adversely.
• Market risk, credit and operational risks are integral part of financial risk.
• Thus, financial decisions made on inaccurate conclusion may lead to
evolution of financial risk to company which is not worthwhile for it.

• Business risk is another type of risk that can be correlated to decisions
made by the management quite adversely.
• This implies that how effective company generating profits in order to
cover operational expenditures in the best possible way.
• It mainly consists of salaries paid to employees, cost of production in case
of manufacturing firm.
• Thus, if business does not initiate control upon expenses, profit cannot be
accomplished.
• This raises risk of not covering costs and thus, profit is not made.
• Hence, risks should be analysed and then decisions should be made in
order to minimise the same.

Methods used for appraising capital
expenditure projects for business
• Capital investment appraisal methods have great importance in choosing
and selecting high yielding projects which eventually initiate benefits to
organisation.
• NPV, IRR, payback period are important methods.
• NPV (Net Present Value)
• It is useful method as it evaluates project viability in terms of profitability
aspect.
• NPV is computed by subtracting present value of cash inflows with cash
outflows for a particular time frame.
• This method is useful as it provides emphasis on time value of money in
effective way.
• Thus, project can be easily evaluated with the help of NPV.