Monday, August 10, 2020

Evaluate Wards Basic Model Of Corporate Financial Strategy In Terms

Evaluate Ward's Basic Model Of Corporate Financial Strategy In Terms Evaluate Ward's Basic Model Of Corporate Financial Strategy In Terms Of Its Theoretical, Conceptual â€" Coursework Example > The corporate financial model is a practical guide on how one can use corporate finance to add value to a company. By explaining the elements of financial strategies shows how they can be tailored to meet the needs of the business and consequently compliment its business strategy. The main goal of every business is to create value for it’s for the stake holders and especially the shareholders. Although all stake holders are important, the shareholder is the principal stakeholder of the company and there for all efforts should be made to create a sustainable shareholder value (Rappaport 1998 p 1). For a company to create this value, it must be able to create a competitive advantage so as to exploit all inconsistencies in the market in which it operates. In order to understand the concept of corporate value, it is important to understand issues of perceived risks and the required investment (Bender Ward 2009 p 4). This essay will focus on determining how financial strategies can be used to identify and exploit value creating opportunities, the relationship between perceived risks and returns, the financial instruments to be used at each stage of the company’s life cycle and why, the limitations of the product life cycle and how the port’s model can be incorporated in the Product life cycle. A financial strategy basically focuses on the financial aspect of strategic decisions and offers a close link between the capital market and the interest of the shareholders. Just like the best corporate and competitive strategies, a sound financial strategy takes into account all external and internal stakeholders of a company (Ogilvie 2009 p3). A financial strategy has two basic components namely rising of funds needed by the business in the most appropriate way and managing the allocation of those funds in the business. When it comes to raising funds in the most appropriate manner, one must take into account the requirements of the key stake holders as well as t he strategy of the organization in overall (Bender Ward 2009 p 5). It’s important to note that the most appropriate way of raising fund may not necessarily be the one with the lowest cost and since the principal objective of a financial strategy is create value, this may not necessarily be achieved by lowering the costs. In employment of funds, we include decisions related to reinvesting or distribution of profits generated by the organization. It is also important to keep in mind that the principle objective of an organization is to come up with a sustainable competitive advantage which will help it to achieve an acceptable, risk-adjusted rate of return for all its key stakeholders, and the most effective way to gauge the success rate of a financial strategy is to check the contribution made to the company’s overall objective ( Bierman 1999 p5). One of the fundamental principal that underlies the financial theory is that all investors will demand a return that is equivalent to the risk they perceive in the investment. Market forces in a perfectly competitive market dictate that investors can only receive their risk adjusted rate of earnings and consequently, no shareholder value is created. It is therefore clear that to create shareholders value, can only be done by exploiting all the imperfections in the market place which arise in products markets where the products are actually sold to the customers. Theoretically, in a perfectly competitive market, the portfolio of projects which make up the firms can only receive the risk adjusted return which is required by the investors. The modem theory of corporate finance indicates that the investor will not even be compensated financially for any unnecessary risk taken by the company or even for the expenditure incurred by the managers. On financial theory, the investors can diversify the risk by developing an appropriate portfolio of different investments which will reduce their dependence on the performan ce of a single company (Sanwai 2007 p 4). Companies can increase this shareholders value by developing a sustainable competitive advantage through selection and implementation of effective competitive strategies. The diagram below is known as the risk- return line and shows the expected return for any given level of risk.

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