bachelor of science in business finance

bachelor of science in business finance

The Impact of Financial Strategies on Business Success: A Comprehensive Study in Business Finance

1. Introduction to Business Finance

Financial decisions when determining the source and the use of funds throughout their useful life are vital to the continuity and growth of the company. Also, there is the speed with which the capital invested has short-term liquidity generating a decrease in the company’s chances of success. There are numerous works that address this issue from the point of view of the company-size, industry, resources to which the company has access comparing large multinational companies in developed countries compared annually, and separately by 2 of the variables performance measures on which decision is basing their conclusions.

Financial activities occupy a central place in businesses since companies have the goal of making profits and growing over time. This logic causes managers to continually analyze the business to then put them into practice. This study aims to analyze the impact of financial performance on the success of the business in the context of Argentinian micro, small, and medium-sized companies. Among the findings, it is discovered how every 1 peso better financial performance increases the success of the company by 18%, taking into account the five economic/financial profitability indicators studied specifically for each country. To achieve the research objectives, the relationship between economic/financial profitability indicators used to measure financial performance and five success indicators business were analyzed estimated by multiple linear regressions in 156 companies in the province of Tucuman – Argentina.

2. Key Financial Concepts and Theories

To fund agency costs, a company must have assets that can be converted into cash quickly, called liquidity. Since no business wants to have more liquidity than is necessary, given the opportunity cost of holding cash, strategic liquidity management is needed to manage the risk-return tradeoff of cash asset holdings with other non-cash investments. Firms view cash as an asset, the way they view machines and buildings, and they employ sophisticated financial strategies to manage their cash so it can be directed to fund the efficient operation of the production line, customer service, and investment-making.

Effective use of the acquired working capital is critical to a business’s short-term survival and financial strategies to manage such working capital is of managerial concern to the firm. Businesses define optimal working capital investment and financing strategies to facilitate smooth operations and profitable sustainability. The liquidity managers must make sure that funds are always available to cover the purchases of needed materials and that a variety of non-material related obligations, such as paying suppliers and meeting payroll, are met when they come due.

In business finance, the most widely accepted measure of business success is the maximization of the present value of the firm, evaluated on a per share basis. Successful businesses should plan financial strategies to maximize the economic value of equity ownership, seek growth opportunities consisting of net present value projects, employ the right amount of leverage, and design innovative financial risks that match the business risks of the firm in the presence of risk transfer from insurers through a risk-financing system. To this end, businesses use financial economics, agency theory, capital structure theories, the trade-off theory, the pecking order theory, option pricing theory, credit risk models, and business-oriented quantitative models and analytics to produce business-focused financial solutions and to pursue business success.

Financial management is about managing wealth in the business by utilizing financial expertise and creative financial strategies to create valuable financial assets and grow wealth ownership as an effective wealth creation and exploitation system inherent in a successful business. In pursuit of wealth maximization and competitive edge, successful businesses use proprietary and unique financial strategies instead of using what others use. Therefore, the use of well-defined, insightful financial strategies is an essential condition for the achievement of lasting business success.

3. Financial Analysis and Decision Making

Whenever new members are introduced to the financial staff of any corporation, the first thing they need to be informed about is the financial information process. The key to the continued use of financial information and its future development is the necessity to understand it. Financial analysis will be dependent upon the data and information that must be generated, which in turn will result in some form of financial decision-making. This data has been and will continue to be used across a broad range of activities, which involve members of a given firm. This includes such diverse areas as the setting of new corporate objectives, operating budgets for the various divisions, as well as planning for future development. The use of such financial data will also become the basis of compensation plans for various key employees within these corporations. The variables from the financial areas are not used only to evaluate success, but many are used to forecast the future results of corporate enterprises.

4. Strategic Financial Planning and Management

The descriptive evidence and observations among the strategies suggest that tax, bankruptcy, and contractual expenditure (managers’ preference for debt) might have substantial impacts on the nonoptimality between book values (operating and market) and the actual leverage decisions of the firm.

Robert C. Higgins acknowledges several shortcomings in the prior empirical studies that examine corporate financial strategies and uses a sample allegedly larger and estimates more recently than those prior empirical studies that examine corporate financial policies by considering two measures of leverage – one based on the market value of debt, the other on the book value of debt; and three sample periods that offer a more encompassing time frame in which to investigate the choice of leverage of the case for decision errors; and might provide the more appropriate analyses.

Subsequent work has analyzed how different types of debt – secured or unsecured (senior or subordinated), convertible, collateralized or unsecured, etc. – the presence or absence of covenants, the extent and type of managerial restrictions, or the loss of command over different corporate decisions – and the events which trigger them – might make the tradeoff between the internal financing advantages and the bankruptcy costs of leverage relatively more or less costly when assumptions in the original Modigliani and Miller study are relaxed.

Then the authors explain why firms might have different financial strategies. Modigliani and Miller’s pioneering work on corporate finance concluded that the choice of the three financial strategies is irrelevant, since a firm can rearrange its financial strategies by simply altering the debt’s form or the type of debt or leverage ratios. However, the world to which the Modigliani-Miller theorem applies is only assured of liquidity on the date on which liabilities mature, while prior to that date, scarce liquidity could force a firm to prematurely retire its liabilities, go bankrupt, or forego profitable opportunities.

Karen Knight, Ken Eades, and Robert C. Higgins investigate the choices firms make with respect to corporate financial strategies in the Strategic Financial Planning and Management chapter. They begin by defining the distinction between the level of each type of strategy: the capital structure is the level of liabilities relative to shareholders’ equity, the dividend policy is the level of actual dividends relative to earnings, and the type of debt management used in making debt service payments (amount, type, and covenants) may be at odds with the best strategy to maximize firm value. In other words, they consider the speed at which a firm moves through its financial life cycle.

5. Case Studies and Real-World Applications

In a linear world predicated on all content and very strict course constraints, such a teaching tool brings in interesting and challenging conversation items, such as: teaching procedures must be easy; books have to contain a list of key points or accurate interactions warrant little attention; data collection is too often confused with empirical research (which is indeed difficult); simple theories are easy to test; the primary task of company financial management is to ensure the ethical and lawful production of financial statements, because a narrow and minimum-cost control structure would be the most desirable; in most cases, the primary task of company financial management is to serve the company’s ultimate owners, such as by maximizing the wealth of shareholders; in summary, a company’s most important financial goal is to make a positive net cash flow. In other respects, the teaching of business finance is consistent with this teaching approach.

Distinct from a methodology based on extensive prior experimentation or on a great deal of sampling from the known universe, the suggestions for activities in business finance literature can only be suggestions. Case studies and discussions of real-life applications constantly contribute to improvement in the subject. To give students of business finance a framework for a method of choosing strategies that also fits together the theories in business finance literature and to suggest some hypotheses for business and academic research in business finance, we use recommendations and findings from case studies of business finance strategies and their implementation. Adherence to this framework is one of the important features of this teaching tool. Mastering it is what helps separate corporate financial managers from bookkeepers and from empirical researchers who are more caught up in the act of data collection than in financing.