| Strategic financial management is basically about | | | | company. To maximize the market value of the |
| the identification of the possible strategies capable | | | | company, the financial manager will be interested |
| of maximizing an organization's market value. It | | | | in those projects with maximum returns and |
| involves the allocation of scarce capital resources | | | | minimum risk. An understanding of cost of capital, |
| among competing opportunities. It also | | | | capital structure and portfolio theory is a |
| encompasses the implementation and monitoring | | | | prerequisite here. |
| of the chosen strategy so as to achieve agreed | | | | 3. Dividend decision - dividend decision determines |
| objectives. | | | | the division of earnings between payments to |
| The key decisions falling within the scope of | | | | shareholders and reinvestment in the company. |
| financial strategy include the following: | | | | Retained earnings are one of the most significant |
| 1. Financial decisions - this deals with the mode of | | | | sources of funds for financing corporate growth, |
| financing or mix of equity capital and debt capital. | | | | dividends constitute the cash flows that accrue to |
| If it is possible to alter the total value of the | | | | shareholders. Although both growth and dividends |
| company by alteration in the capital structure of | | | | are desirable, these goals are in conflict with each |
| the company, then an optimal financial mix would | | | | other. A higher dividend rate means rate means |
| exist - where the market value of the company | | | | less retained earnings and consequently slower |
| is maximized. | | | | rate of growth in future earnings and share prices. |
| 2. Investment decision - this involves the | | | | The finance manager must provide reasonable |
| profitable utilization of firm's funds especially in | | | | answer to this conflict. |
| long-term projects (capital projects). Because the | | | | It should be noted that the theory of corporate |
| future benefits associated with such projects are | | | | finance is based on the assumption that the |
| not known with certainty, investment decisions | | | | objective of management is to maximize the |
| necessarily involve risk. The projects are | | | | market value of the company. More specifically, it |
| therefore evaluated in relation to their expected | | | | is settled in finance that the main objective of a |
| return and risk. For these are the factors that | | | | company should be to maximize wealth of its |
| ultimately determine the market value of the | | | | ordinary shareholders. |