Financial Analysis. Lesson 20. Corporate Financial Strategy and Capital Allocation

Financial Analysis. Lesson 20. Corporate Financial Strategy and Capital Allocation

1. Corporate financial strategy aligns financial decisions with long-term business goals.

2. Capital allocation involves distributing financial resources across projects for growth.

3. Organic growth is company expansion through internal initiatives rather than acquisitions.

4. Inorganic growth achieves expansion by acquiring or merging with other companies.

5. Capital budgeting prioritizes projects based on potential returns and risks.

6. Capital structure optimization seeks the ideal debt-to-equity ratio for financing.

7. Retained earnings are profits reinvested into the company instead of dividends.

8. Divestment is the sale of assets or divisions to streamline operations.

9. Share buyback repurchases outstanding shares to increase shareholder value.

10. Dividend policy determines the payout ratio and frequency of dividend distribution.

11. Working capital management ensures adequate liquidity for day-to-day operations.

12. Cost of capital assesses the expense of financing through debt or equity.

13. Debt capacity is the maximum borrowing limit without risking financial stability.

14. Cash flow prioritization allocates cash to high-impact, value-generating projects.

15. Strategic financial planning integrates financial goals into the broader business strategy.

16. Resource allocation directs funds and resources to high-potential projects.

17. Return on invested capital (ROIC) measures returns on all capital employed.

18. Growth capital funds business expansion, focusing on revenue-generating assets.

19. Exit options refer to strategies for divesting from investments effectively.

20. Value creation is enhancing shareholder value through strategic financial decisions.

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Technical Examples:

1. Capital budgeting guides decision-making for high-return projects versus resource constraints.

2. ROIC helps assess overall effectiveness of investments across the organization.

3. Share buyback can increase share value by reducing outstanding shares.