SREEKUTTAN

8/8/2019 SREEKUTTAN

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INTERNATIONALFINANCIALSTRATEGY

PRESENTED BYAJESH MUKUNDAN P

+91 [email protected]

8/8/2019 SREEKUTTAN


Strategies are generally long term plans forthe organization

Financial decisions ± Project selection decisions, Pricing decisions,

Dividend decisions, Cost decision, and othermarket and competitors decision.

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FINANCIAL STRATEGY

Financial aspects of strategic decisionsTailor to the need of individual company & its

sub divisionsClose linkage with

Interest of stake holders

Capital markets

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In the project selection/ capital budgetingdecisions

±

important task to maintain the level of decisionfor the ongoing health of the organization ± The cost involvement in the project is very

important factor

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International Financial Strategies

Corporate Level Strategy

Business level strategy

Functional level strategy

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Factors involved

Future need for liquidity

Future cash flow

Relation between assets and liabilities

Your company's risk profile

Time horizon

How your business will be financed

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Components

Raising the funds needed by an organization

in the most appropriate manner

Managing the employment of those funds

within the organization

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Corporate Level Strategy

Decisions like investment in new project,diversification, mergers and acquisitions andtake over, are related with the corporatelevel financial strategies.

Some important corporate financial strategiesare

* EVA -- Economic Value added* ROI -- Return on Investment* SVA -- Share Value Added.* MVA -- Market value added

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EVA & ROI Approach

Playing very important role in the decisionmaking process.EVA Economic Value Added for the organization.

The valuation of financial position of organizationin a month, or in a quarter, or half yearly and orannually basis, it is the regular evaluating task of

managementEva = net profit -- capital charge.EVA = capital employed (roi-cost of capital)

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EVA = PBIT (I-Tax) cost of capitalwhere,

PBIT operating profit before interest and TaxT = Tax rate (Respective financial years)Cost of Capital = Cost of equity + Cost of debit

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Main drivers of economic value added are :-* capital employed

* risk* spread* growth

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Capital employed

Is a very important role player ordeterminant of economic value added. bigger the size with positive spread lead tomaximum EVA. Similarly lower the size of capital employed lead to minimum EVA. Sowe can say that capital employed is the oneof the factors which affect the EVA.

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RISK

Operating Risk & Financial RiskThe value of total risk always affects the value of EVA or determination of EVA. Making Co-operationbetween operating risk & operating cost / profitand same for financial risk is very good andsuggestive strategy for any concern. The concept of more risk resulting more return is not alwayscorrect but this concept increases entrepreneurshipamong the business people and developing morerisk bearing capacity.

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Spread

The term spread in EVA context is defined asthe difference between return on capitalemployed and cost on capitalemployed. When we are computing productof the difference between return on capitalemployed and cost of capital employed withthe capital employed we will get the value of EVA. So, the main thing is what is theposition of return on capital employed ascompare to cost of capital employed.

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Suppose , Return on capital employed = Rs.1,00,000Cost on capital employed = Rs 9,00,000Capital employed is = Rs 5,00,000

Then we can say the return on capital employed Rs100,000 is more than cost Rs 90,000 So it would bethe positive spread. In the other hand it ROCE is Rs90,.000 & COCE is Rs 1,00,000 then it will be thenegative spread. When there is negative spreadeconomic value will be destructive.

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Growth rate in Earnings :- It is anotherdeterminant of economic value added. If theorganization is earning good growth year onyear simultaneously the EVA will also reachhigh & company can go for diversification orexpansion of business.

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Conclusion

At last the financial strategies for creating values in differentsectors like production,service,IT are how furnishing &performing their job to attain the organization goal, howfinancial managers are doing their job like arrangement anddisbursement of finance, allocation of finance to varioussub-segments based on their performance and share, areimportant points. While discussing the financial strategiesespecially for stock exchanges or we can say Indian capital

market the strategies are very sensitive and conditions arevery conditional decisions are very quick movers. In thefluctuated market we have to formulate consistent strategyand which is like counting stars in the sky in the moonlight.

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* Financial strategies should be not constantchangeable.* Organizations have to ready for all the future

happening positive or negative* More concentration on increasing economicvalue added through spread and positive ROCE.* Amendments in Govt. regulation according to

need or up gradation.* Hiring skilled and research oriented, analytical,financial managers

SREEKUTTAN

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