What Is The Role Of Finance In The Decision Making And Strategic Planning Process

The financial metrics of a company is for assessing its performance. If you ask what finance’s role is in the strategic planning procedure, there’s no single role (but many). After all, it helps establish & monitor measurable and specific financial strategic requirements and goals on an integrated and coordinated basis. Therefore, it enables the firm to operate effectively. Financial goals & metrics establish some significance:

Free Cash Flow

It happens to be the measure of the financial soundness of the firm. It shows that financial resources get utilized for generating additional cash for future investments. It represents net cash available upon deducting investments & working the capital increases from operating the firm’s cash flow.

Economic Value-Added

It’s a bottom-line contribution to help management make it more effective. It lets management to happen timely and expand businesses that can increase the economic value of the firm. It helps in implementing the corrective actions in those destroying values.

Asset Management

Kuran Malhotra says that assess management calls for efficient and effective management of the current assets (receivables, cash, inventory) & current liabilities (accruals, payables) turnovers & enhanced working capital management cash conversion cycle.

Financing Decisions & Capital Structure

Financing happens to be limited to optimal capital structures. It’s the level of minimizing the cost of the capital of the firm. The optimal capital structure can determine the reserve capacity of the firm. Companies establish the structure when the capital cost rises above, and there’s a lack of investments.

Profitability Ratios

It’s the measure of operational efficiencies of the firm. The profitability ratios indicate inefficient areas requiring corrective actions. They measure the profit relationships with total assets, sales, as well as net worth. Companies should set ratio goals when they require operating effectively & pursue selective improvements in the activities.

Growth Indices

Growth indices can evaluate sales & market share growth. It determines the acceptable trade-off of the growth to reduce cash flows, returns on the investment, and profit margins.

Tax Optimization

Most functional areas as well as business units, require managing levels of the tax liabilities undertaken while conducting the business. To understand mitigating risk and reduces the expected taxes, it’s important. In addition, the new initiatives, product development projects, and acquisitions must get weighed against the tax implications.

Risk Assessment & Management

A company should address the uncertainties by measuring, identifying, & controlling the existing risks in the corporate governance as well as regulatory compliance. Kuran Malhotra states that companies should make assessments while anticipating greater uncertainty.

Financial performance gets emphasized as one of those key indicators of the success of the firm. It helps in linking the strategic goals to the performance.

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