#cafinal | #afm | ch-1 | Short Class 1.9 | Strategic Financial Decision making Framework | Theory

CA Final - Advanced Financial Management Lectures
Chapter 1 - Financial policy & Corporate strategy
Class 1.9 - Strategic Financial Decision-Making Framework
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Capital investment is the springboard for wealth creation. In a world of economic uncertainty, the
investors want to maximize their wealth by selecting optimum investment and financial opportunities
that will give them maximum expected returns at minimum risk. Since management is ultimately
responsible to the investors, the objective of corporate financial management should implement
investment and financing decisions which should satisfy the shareholders by placing them all in an
equal, optimum financial position. The satisfaction of the interests of the shareholders should be
perceived as a means to an end, namely maximization of shareholders’ wealth. Since capital is the
limiting factor, the problem that the management will face is the strategic allocation of limited funds
between alternative uses in such a manner, that the companies have the ability to sustain or increase
investor returns through a continual search for investment opportunities that generate funds for their business and are more favourable for the investors. Therefore, all businesses need to have the
following three fundamental essential elements:
• A clear and realistic strategy,
• The financial resources, controls and systems to see it through and
• The right management team and processes to make it happen.
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