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Strategic Finance Advisory
Through our strategic Finance Advisory Services, we provide deep insight for planning, decision making, capital control, resource acquisition and allocation, investment, portfolio optimization and operations management. Successful business ventures require large investments in assets (capital expenditures) for Property Plant & Equipment PP&E), technology, human capital, intellectual property, and short term assets to ensure sustainability and sustainable competitive advantage. Funding must be strategically sourced and allocated for the acquisition of wealth building assets using a combination of debt and equity.
From a strategy perspective, firm wealth maximization is achieved by accepting and prioritizing all investments having a positive present value after discounting at the firm’s investment rate policy and break-even time expectancy. Expected investor return rates should be considered when considering the cost of capital. As such, the optimal choice of financing method and appropriate discount rate to use in present value calculations are the most important in decisions in making investments that maximize firm wealth.
Firm financial policy should govern all decisions regarding acceptable return rates for long term investments, dividends paid to equity investors, and maximum interest rates paid to finance all its debt. Comprehensive financial policy should address budget plans, revenue, accounting methodology, debt treatment, capital planning, inventory management, purchasing, investing, and financial management. Generally, when considering an investment or project, if the Internal Rate of Return (IRR) is higher than the WACC, the investment (or project) should be considered good for growth. Business growth initiatives should be funded through a resource that can provide capital throughout all stages of growth and keeping the cost of capital low with proven strategies.
Examples of How Capital Planning, FP&A, and Finance Sourcing, and strategic resource allocation Increases Firm Wealth:
- Achieve a lower required rate of return for capital investments. When making capital investments such as a new such as a new facility, capital project for growth, The Weighted Average Cost of Capital (WACC) helps determine if the investment is worth the expense of the capital needed to complete the project. When the Internal Rate of Return (IRR) is higher than the WACC, the investment (or project) should be considered good for growth.
- Increased financial resources for building wealth – With savings from lower costs of capital, strategic investments can be made to improve operational efficiency such as new technologies, new equipment, and newer facilities. Newly gained efficiencies improve the company’s sustainable growth rate (SGR) due to lower capital expense.
- Better economies of scale. Lowered costs through economies of scale include a. Bulk Purchases for significant discounts. b. Managerial – training for increasing efficiency of staff. c. Financial – lower interest rates for loans and access to better financial instruments. d. Marketing – spreading the cost of advertising over a greater range of output, and e. Investments in new technologies for more efficient assets (PP&E)
Strategic financial management means not only managing a company’s finances but managing them with the intent to succeed attaining the company’s long-term goals and objectives and maximize shareholder value over time.
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