Strategic Financial

Management - Frameworks
Sunder Ram Korivi
Agenda
• Valuation Basics
• Corporate Objectives
• Performance Measurement & Analysis
• Strategy and Business Model
• Capital Allocation
• Strategic Financial Decisions
Agenda/2
• Organizational Architecture
• Cost Management
• Corporate Risk Management
• Mergers, Acquisitions and Corporate Restructuring
• Corporate Governance
• Value Based Management
• Stellar Value Creators
Evolution of SFM
• The continuum:
• Financial Accounting  Financial Management  Strategic Financial
Management  Strategic Management
• Cost Accounting  Cost Management  Strategic Cost Management
 Strategic Management
• SFM is an eclectic field, comprising of Finance, Strategy, Management
Accounting, Corporate Governance, Organizational Design,
Behavioural Economics. Getting out of the silo
Contributors to SFM
• Warren Buffet
• McKinsey team: Tom Copeland, Tim Koller, Jack Murrin, Mark
Goedhart, David Wessels
• Alfred Rappaport, Aswath Damodaran, Michael Mouboussin, Fisher
Black, Bennet Stewart, Al Ebrhar, Bruce Greenwald, Judd Kahn, Phil
Rosenzweig, Gordon Donaldson, Stewart Myers, Robert Kaplan, J.
Brickley, C. Smith, J. Zimmerman, Michael Porter, James McTaggart,
Peter Kontes, Michael Mankins, Timothy Leuhrman, Peter Tufano
• Michael Jensen and William Meckling, Franco Modigliani and
Merton Miller
Strategic Financial Management:
Octagonal Strategy Diamond
1. Strategy and Business Model: Management Discussion & Analysis (MDA).
Emerging Industries in India – Defence, Food Processing and Water
2. Capital Allocation: The Investment Decision
3. Strategic Financial Decisions: Financing and Dividend Decisions & other
corporate actions
4. Organizational Architecture: Locational advantages. GAAR, BEPS, POEM
5. Cost Management: Seen from a strategic perspective
6. Corporate Risk Management: Process and Reporting
7. Mergers, Acquisitions & Corporate Restructuring: IBC, Deals, PSU Divestments
8. Corporate Governance: LODR, Kotak Committee
What has changed?
• Deregulation and its consequences (GFC 2008)
• Liberalization of the internal sectors
• Privatization, as a reversal of socialism
• Globalization – its evolution and return to protectionism
• Automation and all its forms
• Services Sector and its ascent in economies
What has changed?/2
• Competition has intensified
• Investment and financing avenues have expanded
• Corporates have grown in size and complexity
• Capital has now become more mobile
• Institutional investors have become an important force
• Financial prices have become more volatile
• Intangible assets have assumed greater significance
Valuation Basics
• Book Value Approach
• Stock and Debt Approach
• DCF Approach
• Relative Valuation Approach
• Option Valuation Approach
Valuation – what needs to be done
• Maximize shareholder wealth
• Numerator and Denominator aspects
• Eight levers (Octagonal Diamond)
• Public listing provides information (functions of financial markets)
• DCF process: (1) Forecast the free cash flow during the planning period (2)
Calculate the WACC (3) Estimate the continuing value (4) Calculate the
enterprise value
• Explore real options
• Market values may diverge in the short run
• Key factors: cash flows, growth and risk