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Syllabus G. Finance In Planning And Decision-Making G1. Finance Function

G1a. Financial Objectives and Business Strategy

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