Chapter One : Financial policy and corporate strategy

Question 1

What are the Advanced role of CFO?

Answer 1

A. Risk management
B. Supply chain
C. Mergers, acquisition and corporate restructuring
D. Environmental, social and governance financing

Question 2

————- is the spring board for wealth creation

Answer 2

Capital investment

Question 3

Fundamental essential elements of business?

Answer 3

l. Strategy _ clear, realistic
II.financial _ resources, controls and systems
Ill. Management - right → team and process to make it happen

Question 4

Fundamentals of business

Answer 4

Strategy + finance + management

Question 5

Meaning of strategic financial management

Answer 5

It combines the backward- looking , report focused discipline of financial accounting with more - dynamic, forward looking subject of financial management

Question 6

Functions of SFM

Answer 6

CSDEA
1. Continual Search for best investment opportunities
2. Selection of the best profitable opportunities
3. Determination of optimal mix of funds for the opportunities
4. Establishment of systems for Internal controls
5. Analysis of results for future decision making

Question 7

What are the strategy at different hierarchy levels

Answer 7

Corporate Level, Business Unit Level and Functional or Departmental Level

Question 7

Scope of Financial Strategy

Answer 7

1. Financing Decisions
2. Investment Decisions
3. Dividend Decisions
4. Portfolio Decisions

Question 8

What basic questions corporate level strategy should answer

Answer 8

Suitability, Feasibility and Acceptability

Question 9

Business Unit Level Strategy

Answer 9

Profit Centre - planned independently
strategic issue - about practical coordination of operating units and developing and sustaining a competitive advantage

Question 10

Functional Level Strategy

Answer 10

Level of operating divisions and departments

Strategic Issues - related to functional business processes and value chain.

Question 11

What is Financial Planning ?

Answer 11

It is the backbone of Business planning and corporate planning

Helps in defining the feasible area of operation for all types of activities and thereby defines the overall planning framework.

It is a systematic approach whereby the financial planner helps the customer to maximise his existing financial resources by utilising financial tools to achieve his financial goals

Question 12

Components of Financial Planning

Answer 12

FR + FT + FG

Question 13

Important dimensions of a strategic plan

Answer 13

1. Sources of finance
2. Capital Structure

Question 14

Sources of short term finances

Answer 14

OD, CC, Bill discounting, bank loan and trade credit

Public deposit for a fixed time period - major source of short and medium term finance

Question 15

Debt ratio norms

Answer 15

Public sector - 1:1
private sector - 2:1

Question 16

For capital Intensive industries the proportion of debt to equity

Answer 16

is much higher

Question 17

Investment proposals mooted by different business units - divided into

Answer 17

1. addition of new product
2. increase the level of existing products thru either an increase in capacity in the existing plant or setting up of another plant for meeting additional capacity requirement
3. cost reduction and effective utilisation of resources

Question 18

Dividend Policy decision deals

Answer 18

with the extent of earnings to be distributed as dividend and the extent of earnings to be retained for future expansion scheme of the firm.

Question 19

What makes an organisation financially sustainable

Answer 19

1. have more than one source of income
2. have more than one way of generating income
3. do strategic, action and financial planning regularly
4. have adequate financial systems
5. have a good public image
6. be Clear about its values
7. have financial autonomy

Question 20

Sustainable Growth Rate

Answer 20

Concept by Robert C Higgins
it is a measure of how Much a firm can grow without borrowing more money.

Question 21

SGR =

Answer 21

ROE x (1-Dividend Payment Ratio)

Question 22

Sustainable growth models assume that business wants to

Answer 22

1. maintain a target capital structure without issuing new equity
2. maintain a target dividend payment ratio
3. increase sales as rapidly as market conditions allow

Question 23

Twin cornerstones in achieving sustainable growth

Answer 23

Growth strategy and growth capability

Question 24

Very weak of sustainability requires that

Answer 24

overall stock of capital assets should remain constant

Question 25

Weak version of sustainability refers

Answer 25

To preservation of critical resources to ensure support for all over a long time horizon

Question 26

Strong concept of sustainability is

Answer 26

concerned with the preservation of resources under the primacy of ecosystem functioning

Question 27

What makes an organisation sustainable?

Answer 27

1. Have a clear strategic direction
2. be able to scan its environment or context to identify opportunities for its work
3. be able to attract, manage and retain competent staff
4. have an adequate administrative and financial infrastructure
5. be able to demonstrate its effectiveness and impact in order to leverage further resources
6. get community support for and involvement in its work

Question 28

Two Sources of Growth

Answer 28

increased volume and inflation

Question 29

Mitsubishi Corporation (MC) - New strategic Direction

Answer 29

• abolished midterm management plan
• NSD - consists of basic concepts on management policy together with business and market strategies