Financial Strategies: Investment Appraisal Methods for Managers

This presentation elucidates the pivotal role of financial information in strategic decision-making, emphasizing investment appraisal techniques for optimal business outcomes. It begins by identifying key sources of financial data, including Cash Flow Statements, Income Statements, and Financial Position Statements, and explains how these inform business strategy formulation. The presentation then addresses the inherent risks in financial business decisions, such as market risk, credit risk, liquidity risk, and operational risk, highlighting the importance of risk assessment. Furthermore, it delves into appraisal methods used in strategic capital expenditure projects, including Payback Period, Accounting Rate of Return (ARR), Net Present Value (NPV), and Internal Rate of Return (IRR). The conclusion underscores the importance of financial analysis in strategy development and risk management, advocating for informed investment choices to foster sustainable growth. Desklib provides access to similar solved assignments and resources for students.

Finance For Strategic
Managers (TASK 1)

Covered content
• Introduction
• Sources of Financial data suitable for informing business strategy
• Need for financial data and information in relation to formulation of
business strategy
• Risks related to financial business decisions
• Appraisal Methods used in strategic capital expenditure projects and
direction
• Conclusion
• References

Introduction
This presentation explain the importance
of financial information in terms of making
decisions and goals for better business
goals. Investment appraisal techniques for
better decision making also considered in
this presentation. Risk related to financial
decision making also defined that affect
the strategic planning.

Objectives of developing international
accounting standards
Every organisation operates towards a short-term goal which is linked to a
long-term objective that aims to achieve the enterprise's overall mission and
vision. In order to undertake accurate strategic planning measures, the
business managers may take into account certain sources of financial data
that are key indicators of company's long-term growth potential.

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Cash Flow Statements (CFS): This source provides a comprehensive
breakdown of all those sources of funds which have been utilized for the purpose
of fulfilling operational, investment and finance-related activities of the business.
Samsung's cash flow has increased between 2017 and 2018 by 7.83%. This
means that the Net Cash Flow available in the form of cash and cash equivalents
are more in 2018 as compared to 2017. Thus, the company can undertake
expansion activities in the form of acquisitions and new joint ventures by
retaining such profits for future investment purposes.

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Income Statement: This source provides complete information regarding
revenue and expenditure which helps in determining net profitability of the
business for a definite financial period. The net profitability of Samsung by
5.12% between 2017 and 2018. From a business strategy perspective, this
revenue growth shows that the company is in a state where they can undertake
alignment of marketing and sales activities which can further boost the
company sales. Also, customer relationships can be strengthened by engaging in
strategic partnerships that help Samsung in allocating their resources in a
market where their existing profitability is low.

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Financial Position Statement: As the name suggests, this source of financial
data gives an overall preview of where the company stands at a given point of
time. Unlike other two sources which are based on financial periods, the
information provided by Balance sheet is much more concise yet detailed. In
2016, the company decided to allocate 50% of its free cash flow with an
objective to improve their shareholder value. In 2018, shareholder's equity
increased by 4.98%. This can be viewed as a successful resultant of the strategic
move adopted by Samsung in 2016.

Need for financial data and
information in relation to formulation
of business strategy
Essentially, a business strategy includes a set of metrics which enable
the business such as Samsung PLC to acquire their visions and missions in
a realistic and holistic manner. For any enterprise, formulation of business
strategy is a critical step which includes a detailed assessment of all the
sources of financial data and information available with the organisation.

Risks related to financial business
decisions
All businesses make decisions which may vary depending on the nature, size
as well as complexity of the business. These may related to operational,
investing or financing activities. It is worthy to note that every decision has a
certain amount of risk associated with it. As a result, it is on the discretion of
company's management to determine whether they are capable of taking that
risk and carrying out a particular business decision or not. In the Finance
world, specifically, it is said that higher risks furnish higher returns.

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Market Risk: Such types of risks arise due to any change occurring in the external business environment.
Credit Risk: This risk arises when the business is unable to recover the outstanding amounts owed by the
customers to the firm.
Liquidity Risk: It is important for every organisation to keep in check their working capital requirements so
as to boast operational efficiency as well as maintain liquidity in the business.
Operational Risk: In the context of operational risks, such a situation arises when the financial manager is
unable to control and organise their day-to-day activities in a significant manner.

Appraisal Methods used in strategic
capital expenditure projects and
direction
A strategic direction refers to the most suitable pathway for a business that can lead
to the achievement of their overall organisational goals or objectives in a sustainable
manner. In order to achieve this, the company management may undertake various
activities related to strategic planning.
Payback Period
Accounting Rate of Return (ARR):
Net Present Value (NPV):
Internal Rate of Return (IRR):

Conclusion
From the above presentation it can be concluded financial information helps in
formulating strategies and plans and also assist the organisation for taking risk in as
an opportunity. By detailed analysis of investment appraisal technique it is
concluded that organisation be able to choose best investment option for sustainable
growth.