Definition of Financial Strategy

Written by marquis codjia
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Definition of Financial Strategy
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The Free Dictionary by Farlex defines a financial strategy as practices that a firm adopts to pursue its economic objectives. In the corporate context, formulating a financial strategy is the purview of top leadership, although department chiefs and accounting heads also pitch in. Adequate financial plans help a company walk before running, especially when it comes to setting the short-term operating framework necessary to achieve long-term results.

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Financial Analysis

Corporate leadership knows that financial strategies don't always evolve according to plan. Some might end up increasing the company's debt pile, whereas others could significantly reduce cash in corporate coffers. To prevent losses resulting from inadequate economic policy-setting, top management analyses financial results frequently. Financial analysis involves the study of accounting ratios, such as net profit margin, and how they affect corporate liquidity. Net profit margin equals net income divided by total sales and indicates short-term profit trends.

Competitive Scrutiny

A financial plan draws on a review of the competitive landscape, with a focus on how rivals deploy economic levers to thrive and expand. In analysing competitors' financial strategies, a firm's top leadership evaluates operating options to adapt to corporate activities. To increase the chances of success, senior executives generally come up with a solution that sticks.

Corporate Finance

Corporate finance enables an organisation to raise the cash necessary to operate. Generally a collective initiative, a well-rounded, focused funding strategy allows the company to reach its operating goals. Partnering with competent, experienced financial professionals is important, especially if the firm wants to establish a long-term rapport with the investment community. As a result, top leadership might canvass the offices of investment bankers, lenders, corporate finance specialists and economic consultants.

Accounting and Reporting

Accounting and reporting considerations are integral to corporate financial strategies. To ease investors' fears and reassure lenders, a firm puts policies into place to ensure accuracy in financial reports. Quelling the unease of financial-market players and shareholders requires effective communication skills and a knack for summarising complex operating data in concise reports. Financial data summaries include a balance sheet, a statement of cash flows and a statement of profit and loss.

Financial Controls

Financial controls provide the operating framework that department heads need to improve business functions. These procedures help segment leaders cut loose corporate policies and procedures that are not compatible with top leadership's stipulations. Controls are rules that a segment head establishes to prevent fraud and errors in financial statements, with a special focus on accounting mechanisms. These rules also prevent the operating challenges that come with unfavourable regulatory actions, such as fines, suspensions and penalties.

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