ACCA SBL Syllabus G. Finance In Planning And Decision-Making - Financial Objectives and Business Strategy - Notes 1 / 2
Financial Obiectives And Business Strategy
Organisations must consider the following financial aspects when developing their business strategy:
Financial Risk
Financial Return
Funding
Financial Risk
The risk critical financial obligations not met
It looks at Gearing. High gearing (debt compared to equity) means higher interest payments and hence higher risk
It also looks at Liquidity — enough cash to meet short term obligations
Financial Return
Investors want a return. Not-for-profits want value for money
Methods to calculate return include ROCE, NPV, IRR and Payback (all are assumed knowledge in this paper)
Funding
Funding decisions help to manage risk.
The funding model may vary over time
| Launch | Growth | Maturity | Decline | |
|---|---|---|---|---|
| Business Risk | Very High | High | Medium / Low | Low |
| Finance Risk | Try to keep low | Try to keep low | Increased | Can be high |
| Funding | Venture Capital | Equity | Debt and Equity | Debt |
| Dividends | Nil | Very low | High | High |