Strategic Finance - Meaning and Important Concepts

Introduction

For an organization to succeed in the global and competitive world, it needs to have a robust strategic plan in place. The strategic plan is made of several definite targets it aspires to achieve. Some of the targets are internal (Productivity improvement, sound finance discipline, etc.) as well as external (EPS, Stockholder value, etc.). Therefore, organizations strategic consist of long-term planning, organizational development, treasury management and value management.

Financial Planning and Forecasting

Financial planning and forecasting are integral part of strategic finance. Organization needs to develop strategic finance tools, which can take into account scenario analysis as well as modeling capabilities. A strategic finance tool should help in quickly developing finance models and evaluate various financial scenarios. These financial scenarios can suggest sophisticated debt and capital structure management. Strategic finance tools should be connected to enterprise performance management tools as well as other databases. A strategic finance tool should provide a convincing finance solution which further can be used to set internal targets, perform financial analysis and provide data to perform informed decision making.

Strategic Finance and Strategic Planning

Organization requires a robust and flexible finance tool to analyze ever evolving financial and business market. The finance tool should be capable of doing what-if scenario modeling. It should also allow development of finance models, which can be used to carry our impact analysis based on dynamic variables and reach targets, which can be assigned to other departments.

At present, most of the finance modeling is done through spreadsheets. However, these spreadsheets are somewhat difficult to manage, lack data integrity and do not integrate with other aspects of finance modeling like strategic planning and treasury.

Business Intelligence

Strategic finance module helps the organization in the sensitivity analysis as well as what if analysis allowing to gain deeper understanding of various strategic scenarios and develop business intelligence. Since the strategic finance tool is integrated with other business modules all possible disconnect between strategic targets, and operational plans are analyzed.

Complete Finance Modeling

Finance modeling provides insight into impact of strategic decisions on company’s bottom line, cash flow, balance sheet and shareholder value. Strategic finance module provides the bridge between finance modeling and financial analysis. Its gives flexibility in developing finance models and measure impact on financial statements. Strategic finance modules have an in-built finance model which saves time from designing and developing spreadsheet based models. Finance modeling tools' users need not be trained in writing complex logic statements. The finance tool provides users flexibility of adding as many complexities as required. The finance tool provides users to invest more time in doing analysis and developing alternate strategies rather spending time in validating data.

Strategic Finance and Capital Management

Any strategic finance decision has a direct impact on cash flow of the company. In turn cash flow impacts the balance sheet, hence financial performance within the company. The strategic finance tool connects finance decision-making process to working capital management to capital structure to taxation. This connection adds value to organization and reduces overall cost of capital.

A strategic finance tool also has a consolidation module which provides the total view to decision makers.


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