Financial Strategy- A
medium to long term
plan to achieve the
financial objectives of
a business
Investment- Major
capital expenditure
programs expected to
provide financial
returns in the long run
Retained Profit- The part of
the profit after tax that is kept
for reinvestment rather than
being paid out to shareholders
Sale and leaseback- Assets
such as property are sold then
immediately rented back on a
long term lease so they are still
available for use by the firm
Public share issue- when a plc offers
shares for sale to the general public in
order to raise more capital
Rights issue- when a plc offers shares to
existing shareholders, usually at a
discount to the current market price.
Cost Centre- A part of an organisation for which costs can
be clearly identified eg a department, division or branch of a
business.
Profit Centre- a part of an organisation for which costs and
revenue can be clearly identified eg a department, division
or branch of a business so its profits can be calculated.
Offshoring- This is the relocation of part of a business
to a lower cost country eg call centres to India
Various sources of finance but they have an impact
on ownership, gearing and long and short term
profitability
Main sources of finance
Borrowing
LT loans. Done quickly but
interest will be paid
Selling Shares
slow and expensive but no interest payments.
Shareholders expect dividends
Retaining profits
Sale of assets
NCA that firms no longer needs/whole
division that does not fit with strategy
Profit centres split businesses into
smaller parts
Costly and time consuming
Useful
Allocating revenue, costs and profits for
more accurate decision making
Easier to monitor budgets,
targets and performance
Decentralising decision making allows
fast more responsive decision making
Delegating authority to profit
centres can be motivating
Cost minimisation can be applied in all functions
Minimising labour costs
Using Technology
Replace existing workers as firms become
more capital intensive
Relocating
offshoring. For labour intensive will
be for lower labour costs
No point if quality compromised
Decisions need to be made on how capital
expenditure on NCA will be allocated
Decisions normally have
significant opportunity cost