Modern businesses operate under complex and sophisticated business environments. Managing various and multi-faceted internal activities is only part of the management’s responsibilities. Yet the firm’s immediate external environment poses another set of challenging factors. The analysis of the environmental factors is critical for the long-term success of the business. Under strategic planning, we critically examine the impact of the following factors to business:
▪ Impact of the competitors to the business in the market and the specific industries.
▪ Bargaining power of the suppliers and strategic sourcing of goods and services in the market.
▪ Bargaining power of the customers in the market.
▪ Effect of the Government policies including tax changes and other statutory regulatory framework.
▪ Economic, political, social, and technological environments under which the business operates.
Financial management is designed to help maximize the value of a firm. Value is determined, in the long run, by results as revealed in financial statements. The focus is on how current decisions affect future financial statements. The finance functions or decisions include Investment or long-term assets mix decisions; Financing or capital –mix decisions; Dividend or profit allocation decisions; Liquidity or short- term asset-mix decisions.
A business firm performs finance functions simultaneously and continuously in the normal course of the business. They do not necessarily occur in sequence and as such finance functions require skillful planning, control, and execution of a business’s activities.