selecting financial strategies

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Selecting Financial Strategies. A2 Business Studies. Aims and Objectives. Aim: Understand firm’s financial strategies Objectives: Define financial strategies Describe sources of finance Analyse financial strategies. Starter. In groups decide upon a definition of a financial strategy… - PowerPoint PPT Presentation

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Selecting Financial Strategies

Selecting Financial StrategiesA2 Business Studies1Aims and ObjectivesAim: Understand firms financial strategies

Objectives:Define financial strategiesDescribe sources of financeAnalyse financial strategies2StarterIn groups decide upon a definition of a financial strategy

Definition:The long term financial plan to achieve the financial objectives.3Sources of Finance To Fund Strategic Development4Equity Share CapitalDefinitionRaising of capital through sales of shares

Firm decides a max amount of capital it is likely to need in future from sales of shares.Then decides the percentage of this needed in the short to medium term.Shares are then issued to raise this amount of capital.Known as issued share capital.5Equity Share Capital ExampleFirm issues 400,000 shares at 1 eachShare capital = 400,000

If shares are sold for more than their face value this is known as the share premium

Firm issues 400,000 shares at 1 eachSell for 1.50 eachShare capital = 400,000Premium = 200,0006Rights IssueExisting shareholders are offered right to buy a number of new shares.

Number depends on how may shares already held by the shareholder.

Offered at a price below market value.

7Debt (Loans)Banks or financial institutions

Not that risky to lender as secured against assets

Riskier for firm as interest payments may affect performance

Firm relying on debt capital is highly geared8Advantages & DisadvantagesIn groups brainstorm the advantages and disadvantages of share capital and debt as sources of finance.9Financial Strategies10Implementing Profit CentresProfit CentresIdentifiable parts of the business for which costs, revenues and profits can be attributed.

Subsection of firms get responsibility for the above.May be identified by product, department or location.11Implementing Profit CentresDiscuss the benefits of using profit centres...

Helps:Achieve financial objectivesMonitor performanceDelegate responsibilityMotivate managers

Only appropriate if the subsection can manage its costs and revenues!12Cost MinimisationAllows a business to compete on price

Business with high market share can push down their costs from suppliers and therefore sell at low prices.

J.I.T.

Could put pressure on production functions

13Allocating Capital ExpenditureDefinition:Purchase of long term assets. I.e. machinery

Usually a sign off chain involvedImportant to maintain/increase shareholder wealthImportant money spent wisely and benefits are closely monitored over time.

14Question (6 Marks)If Primark was to set an objective of 20% growth over the next five years, would you recommend a strategy of cost minimisation or capital expenditure? (6 Marks)

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