INTERNATIONAL ACCOUNTING AND FINANCE

UNDERSTANDING FINANCE TO
INFLUENCE STRATEGIC DECISIONS
 GROUP 7
• Group Members;
1. Sonia Goncalves
2. Octavia Thalia Da Silva
3. Nelina Carvalheira Martins
4. Jonas De Jesus Borges
 CONTENT;

Product A Product B
• Feature 1 • Feature 1
• Feature 2 • Feature 2
• Feature 3 • Feature 3
 INTRODUCTION;
New business leaders and managers have to develop at least basic skills in
financial management. Expecting others in the organizations to manage
finances is clearly asking for trouble. Basic skills in financial management start
in the critical areas os cash management and bookkeeping, which should be
done according to certain financial controls to ensure integrity in the
bookkeeping process. New leaders and managers should soon go on to learn
how to generate financial statements (from bookkeeping journals) and analyze
those statements to really understand the financial condition of the business.
Financial analysis shows the reality of the situation of a business – seen as
such, financial management is one of the most important practices in
management.
 THE STRATEGIC FINANCIAL DECISION-MAKING
FRAMEWORK

• Capital investment is the springboard for wealth creation. In a world of economic

uncertainty, the investors want to maximize their wealth by selecting optimum
investment and financial opportunities that will give them maximum, expected
returns at minimum risk
• Since management is ultimately responsible to the investors, the
objective of corporate financial management should be to implement
investment and financing decisions which should satisfy the
shareholders by placing them all in an equal, optimum financial
position.
• The satisfaction of the interests of the shareholders should be
perceived as a means to an end – maximization of shareholders
wealth.
• Since capital is the limiting factor, the problem that the management
will face is the strategic allocation of limited funds between
alternative uses in such a manner, that the companies have the ability
to sustain or increase investor returns through a continual search for
investment opportunities that generate funds for their business and
are more favorable for the investors.
• Therefore, all businesses need to have the following three
fundamental essential elements:
 A clear and realistic strategy;
 The financial resources, control and systems to see it through;
 The right management team and processes to make it happen.
 STRATEGY

• A method or plan chosen to bring about a desired future, such as achievement of a

goal or solution to a problem.
• A general direction set for the company and its various components to achieve a
desired state in the future. Strategy results from the detailed strategic planning
process.
 STRATEGY;
A strategy is all about integrating organizational activities and utilizing and
allocating the scarce resources within the organizational environmental
environment so as to meet the present objectives. While planning a
strategy it is essential to consider that decisions are not taken in a vacuum
and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.
• This is the long term direction and scope of an organization to achieve
competitive advantage through the configuration of resources within a
changing environment for the fulfillment of stakeholder’s aspirations
and expectations.

• In an idealized world, management is ultimately responsible to the

investors. Investors maximize their wealth by selecting optimum
investment and financing opportunities, using financial models that
maximized expected returns in absolute terms at minimum risk.
 POINT TO CONCERN;

• What concerns the investors is not simply maximum profit but also the likelihood of it
arising: a risk-return trade-off from a portfolio of investment, with which they feel
comfortable and which may be unique for each individual.
• Strategic financial management combines backward-looking, report-focused discipline of
accounting with the more dynamic, forward-looking subject of financial management.
• Its is basically about the identification of the possible strategies capable of maximizing an
organization’s market value. It involves the allocation of scarce capital resources among
competing opportunities.
• It also encompasses the implementation and monitoring of the chosen strategy so as to
achieve agreed objectives.
• This is the portfolio constituent of the corporate strategic plan that embraces the optimum
investment and financing decisions required to attain the overall specified objectives.
• In this connection, it is necessary to distinguish between strategic, tactical and operational
financial planning.
• While strategy is a long-term course of action, tactics are intermediate plans, while
operational are short-term functions.
• Irrespective of the time horizon, the investment and financial
decisions functions involve the following functions:
 Continual search for best investment opportunities
 Selection of the best profitable opportunities
 Determination of optimal mix of funds for the opportunities
 Establishment of systems for internal controls
 Analysis of results for future decision-making
 KEY DECISIONS:
• Financial Decisions;
This deals with the mode of financing or mix of equity capital and
debt capital. If is possible to alter the total value of the company by
alteration in the capital structure of the company, then an optimal
financial mix would exist – where the market value of the company is
maximized.
• Investment Decisions;
-This involves the profitable utilization of a firm’s funds especially in long-
term projects. Because the future benefits associated with such projects
are not known with certainly, investment decisions necessarily involve
risk.
-The projects are evaluated in relation to their expected return and risk.
-These are the factors that ultimately determine the market value of the
company
-To maximize the market value of the company, the financial manager will
be interested in those projects with maximum returns and minimum risk
-An understanding of cost of capital, capital structure and portfolio theory
is a prerequisite here
• Dividend Decisions;
-Dividend decisions determines the divisions of earnings between payments to shareholders and
reinvestment in the company.
-Retained earnings are one of the most significant sources of funds for financing corporate
growth, dividends constitute the cash flows that accrue to shareholders
-Although both growth and dividends are desirable, these goals are in conflict with each other
-A higher dividend rate means less retained earnings and consequently, slower rate of growth in
future earnings and share prices
-The finance manager must provide reasonable answer to this conflict
• Portfolio Decisions;
-Portfolio analysis is a method of evaluating investment based on their
contribution to the aggregate performance of the entire corporation
rather than on the isolated characteristics of the investment themselves.
-When performing portfolio analysis, information is gathered about
individual investment available, and then chooses the projects that help to
meet all of our goals in all o the years that are of concerns
-Strategic Portfolio Management takes the insights gained from portfolio
analysis and integrates them into the decision-making process of a
corporation.
 INTERFACE OF FINANCIAL POLICY AND STRATEGIC
MANAGEMENT

• The starting point of an organization is money and the end point of that organization
is also money, this fact must be appreciated so that the interface of strategic
management and financial policy will be clearly understood
• No organization can run an existing business and promote a new expansion project
without a suitable internally mobillized financial based or both internally and
externally mobillized financial base.
• Sources of finance and capital structure are the most important dimensions of a
strategic plan. The generation of fundss may arise out of ownership capital and/or
borrowed capital
 THE DECISION MAKING PROCESS

• Decision making is the process of making choices by identifying a decision, gathering

information, and assessing alternative resolutions. Using a step-by-step decision-making
process can help you make more deliberate, thoughtful decisions by organizing relevant
information and defining alternatives.
• Types of Decision Making - An Overview. We determine types of
decision making by looking at outcomes and the impacted entity. At
the highest level we have chosen to categorize decisions into three
major types: consumer decision making, business decision making,
and personal decision making
LEARNING OUTCOMES;
• Learning outcomes are statements that describe the knowledge or skills
students should acquire by the end of a particular assignment, class,
course, or program, and help students understand why that knowledge
and those skills will be useful to them
ADDRESSING FINANCE MANAGEMENT CHALLENGES
 TODAY’S DISCUSSION;
• Outline the key public sector financial management issues
,especially during a global economic slow-down.
• Describe the leadership role that the controllership function and
the finance decision-makers through this challenging time.
• Provide some thoughts on how the financial function may need to
transform to support the emerging economic and public sector
environment.
 KEY MESSAGES;
• An effective controllership function is forward looking, acting as the
businesses head lights: scanning the environment anticipating issues
and seeking effective resolution.
• Controllership must be involved in the front- end of the decision-
making process helping to assess options and thereby contribute to
successful implementation
• Controllership function must be balance a professional understanding
with practical skill in advanced management management
accounting risk management, process and structure cost control and
revenue management.
WHAT IS CONTROLLERSHIP AND WHY IS IT
CHALLENGING?
 WHAT IS FINANCIAL CONTROLLERSHIP?
• Controllership is :
 Ethical behaviour ;
 Conscious managing of risks ,
 Clear lines of accountability,
 Stewardship of resources , and
 Reporting and evaluating of results against stated objectives .
 WHY CONTROLLERSHIP IS IMPORTANT?

• Accountability to the public.

• Stability and transparency.
• Ensures compliance against states standards.
• Enables efficient and effective use of public resources.
• Define roles and responsibilities.
• Enables performance measurement against agreed expectations.
• Fulfills legal obligations and mandate.
 WHY IS CONTROLLERSHIP CHALLENGING?

• Equal footing : financial / controllership analysis not always on an equal

footing to policy , operational and communication considerations in the
decision- making process
• management perception: controllership seen by management as end state ‘
technical process rather being critical to transparency and accountability.
• Communication: revitalizing financial capacity by attracting , retaining and
developing financial /controllership talent.
 PRINCIPLE KEY IN CONTROLLERSHIP’S EVOLUTION

• Supporting the evolution of the controllership function are four key principles:

o Credibility – a trusted business advisor , providing accurate , timely and reliable financial
information and advice.
o Competence - combine business knowledge with financial expertise to optimize value added,
o Commitment - a shared commitment to the goals of financial management and effective
program service and delivery; and
o Communication – open communication across government, with external professional
organizations and counterparts in other jurisdictions.
• ‘’Think globally , act locally’’
Controllership transformation in
challenging economic times
 KEY CHALLENGES
New economic challenges
• Borderless global economic recession , where Government have a role
supporting families, jobs and industry.
Existing structural challenges
• An aging population increasing demands for healthcare and income
security
• The need to address the infrastructure deficit through sustainable capital
investment.
Current financial management challenge
• Government must balance the need to respond to these immediate
economic challenges without compromising its responsibilities
for addressing the longer objectives.
• Increased complexity of transaction and external reporting requirements
[PSAB , IFRS].