PRATIK SHRESTHA (21240206)

The role of Corporate Financial WORD COUNT: 1543

University of West London

Management in planning and

Table of Contents
INTRODUCTION..................................................................................3
WHAT IS CORPORATE FINANCE MANAGEMENT?....................................3
BUSINESS STRATEGY PLANNING AND FINANCIAL STRATEGIC
MANAGEMENT AND THE ROLE OF CORPORATE FINANCE........................5
CONCLUSION......................................................................................7
REFERENCES......................................................................................7
Introduction
The Chief Financial Officer at British Airlines and the owner of a small
bookstore fundamentally face the same hurdles however in vastly
different scales. (Damodaran, 2015). In the modern business scenario,
various elements discern how a company survives and keep themselves
making the right decisions in Investment, innovation and operations to
excel in their field. Corporate Financial management to put it simply, deals
with transactions where capital is raised to create, grow or acquire a
business (Beaney, 2005). During the process of acquiring capital and
investing in a business, various circumstances needs to be discussed for a
Business Strategy, decision making and financial strategy planning, such
as
i) A decision objective or goal
ii) Existence and valuation of alternatives (LumbyJones, 2015).
This essay will critically discuss the role of corporate finance in strategic
planning, formulation, decision making, implementation, and monitoring
(Pedro M. Kono, Barry Barnes, 2010), Concluding with key findings and
limitations.

What is Corporate Finance Management?

Broadly speaking, all decisions made in a business have their financial
implications and any decisions affecting the finance of a business can be
said as corporate finance. A firms objective is ultimately an increase and
balance of cash flow between four of its key elements i.e.
i) Assets in place: Existing Investments, Generates Cash flow now,
Includes Fixed Assets, Current Assets and Working Capital
ii) Growth assets: Expected value to be made by investments in the
future
iii) Debt: Capital raised to finance assets by funds from investors,
institution by promising fixed claims, Fixed claim on cash flows and
fixed maturity
iv) Equity: Residual claim on cash flow and has significant role in
management (Damodaran, 2015).
The discipline of corporate finance theory revolves around making
decisions to maximize the value of the firm. The rubric of corporate
finance (Seen Below) fits various functions that influences strategic
planning and decision making in the firm (Damodaran, 2015).
Source: (Damodaran, 2006)
In Aswaths (2015) book, Applied Corporate Finance, He discerns the
first principles of corporate finance. He states that firm value must be
linked with three corporate finance decisions;
1) The Investment Principle: The determination of investment in
assets or projects that yield a higher return greater than the
minimum acceptable hurdle rate.
2) The Financing Principle: Choosing a financing mix that
maximizes the investment value and match the financing to the
nature of the asset.
3) The Dividend Principle: Determines how the earnings should be
allocated to re-invest in the business and returned to the owners.
(Damodaran, 2015)
They are stated as the core corporate finance principles which provide the
basis of numerous models and theories of modern corporate finance. Its
focus on value maximization can be considered as its greatest strength
and greatest weakness at the same time. However, recently it has been
argued that the focus in practicality is shifted towards stock price
maximization because they are the most observable measures reflecting
long term effects of decisions and they allow to create categorical
statements on investment and picking projects (Damodaran, 2015). The
following figure explains the principles of Corporate Financial Management
further.
 Source: (Damodaran, 2006)
Hence, Corporate Finance Management can be defined as a set of
financial activities related to achieving maximization of Firm value and
Stock price maximization using investment, financing and dividend
distribution decisions through careful strategic planning, implementation
and monitoring. A very good example of a publicly traded firm with
various holdings that reflects the real-world corporate finance decision
making is Disney Corporation and their expansion into various markets
such as acquiring holdings in Television, Theme Parks, Movies and
Animation in order to maximize the value of their firm as well as increase
stock market price.

Business Strategy Planning and Financial Strategic

Management and The Role of Corporate Finance
Finance and strategy are considered as two sides of the same coin. Hence,
implying that they should not clash but go hand in hand. In the previous
columns, the essay discussed the objectives of corporate finance, its
principles and elements vital for the firms success. This section will
discuss the evaluation of planning strategies and making decisions in
financial terms. Financial strategic value of a firm is traditionally
associated with three performance measure identified by Kenicihi Ohmae
(1992) and Michael Porter (1995) known as the 3 Cs i) Customers ii)
Corporation and iii) Competitors (Mills, 1998). The view supports that a
firm seeks to maximize its financial value by establishing superior value in
the eyes of the customers and shareholders or by achieving competitive
advantage by outperforming their competitors along various dimensions
(Mills, 1998). A firm based on the mentioned objectives determine
strategic choices of who or where they are, where they want to be, and
how to get there, this process is known as Business Strategy Planning and
the financial decisions made to achieve the objective with the highest
yield and risk withholding is known as Financial Strategic Management.

The strategic planning and decision making process follows specific steps
where the vision and mission of the firm ultimately aligns with their goals
and objectives. They are;
i) Mission and Objectives
ii) Environmental Analysis
iii) Strategy Formulation
iv) Strategy Implementation
v) Evaluation and Control (Pedro M. Kono, Barry Barnes, 2010)
These steps incorporate the collective value that the firm will come to
have, through proper and efficient financial management. Professor Pedro
M. Kono, DBA (2010) shares a key finding, where he has identified three
critical elements that is vital for a success in Business strategy planning.
1) A companys alignment with the macro and external environmental
factors.
2) A streamlined internal outlook of the firms core competencies ad
sustainable competitive advantage.
3) Careful implementation and monitoring (Pedro M. Kono, Barry
Barnes, 2010).

The role of corporate finance is key in achieving smooth implementation

and monitoring of all the key steps and elements mentioned above.
Finance management has various elements that dedicates Business
Intelligence to be integrated in the Business strategy process. The
fundamental elements include key operations such as Risk and Hurdle
rate handling Budgeting and Cost Handling, Measuring Return on
Investment, Capital Structuring, Optimizing Financial Mix, Budgeting and
Dividend and Returns policy (Damodaran, 2015). All these processes
combined form a discipline that submits to maximize value and cut cost in
any Strategic Process. Corporate Finance Management utilizes various
financial tools that assist in creating the financial plan, budgeting and
evaluate performance measures in the business strategy (Gottschalk,
2002). Financial statements are a very popular tool used in financial
management to analyze trend and business performance by the financial
managers. Alongside Business Strategic planning for any project,
investment or start-up comes a key procedure of Financial Management is
applied that determines the cost factor and allocation of expenses. The
process is known as Budgeting. Budgeting accepts the highlight of
planning a strategy Looking Forward and puts it into financial terms.
Budgeting is a practical method of financial projections and mobilization of
all the resources, Financial, Material and Human, in their functional
departments (Khan, 2012).
SWOT Analysis, PESTEL, Porters 5 forces,
Resource and Value Based view etc. are
used to analyze the internal and external
environment of the firm and its industry and
market. A popular tool used by leaders and
managers during strategic financial
planning is Balance Scorecard, that lets
them analyze four management processes
(as shown in the picture) that allows to link
long-term strategic objectives with short-
term actions for quick results. The balance
scorecard individually and combined with
financial measures can provide the finance
manager to link measures from the four key perspectives;
i) Financial
ii) Customer
iii) Internal Business Process
iv) Learning and Growth (Khan, 2012)

From the above findings, Five Key functions of Financial management can
be highlighted that support the financial managers in performing strategic
decisions. They are explained as follows:
1) Assist in measuring the performance of critical processes in
different phases so that any considerable risk that might be visible
are understood, communicated and Mitigated.
2) Redirecting funds from investment projects and activities that dont
show promise of producing any attractive rate of return. Instead
utilize in more lucrative opportunities.
3) Constantly provide actionable, time-sensitive and relevant
information to managers for informed decision making
4) Business changes and trends in market are forecasted and
communicated to the managers to either exploit opportunities or
avoid losses.
5) The assumption of costs and future returns from efficient budgeting
will position the managers to incur extra costs as well as implement
strategic plans smoothly.

Conclusion
To conclude, from the discussions above, Corporate Financial Management
has a significance role in Business Strategic Planning. The key role can be
seen as a support in setting objectives, analyze environmental factors and
formulation of the strategy. Financial management and Business Strategy
come hand in hand supporting each other in combinations and individually
in the Implementation stage of the process. Various tools are also used
during the process to keep track of progress, analyze trends and
environmental factors such as financial statements and The Balance
Scorecard. The key elements of Financial strategic planning also play a
massive role with Capital Structuring, Budgeting and Returns Distribution.

The essay was limited by its word count as with only 1500 words; many
research and essential content could not be used in the essay. However,
the 2 elements discussed have concluded to have positive co-relation with
each other.

References
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