Chapter 2 – Relationship of Financial Objectives to Organizational Strategy and Other Organization

Objectives

I. Introduction
A. It is with shareholders when they delegate the task of running a firm to a financial manager
who acts as an agent of the company.
1. The goal is to achieve the highest value of an equity share for the firm’s owners.
2. There are no standard rules that indicate which course of action should be followed by
managers to achieve this.
3. The ultimate guideline is how investors perceive the actions of managers.
4. A good way to motivate managers is to offer them lucrative share options linked to
performance.
B. For long range planning and management control, a business firm establishes its overall
objectives.
1. Objective setting is an important phase in the business enterprise since upon correct
objective setting will the entire structure of the strategies, policies and plans of a
company will rest.
2. The objectives are usually in quantitative terms and are set within a time frame.
3. The setting of physical targets to be accomplished within a set time period would
provide the basis of conversion of the targets into financial objectives.
II. Strategic Financial Management
A. Strategic planning is long-range in scope and has its focus on the organization as a whole.
1. The concept is based on an objective and comprehensive assessment of the present
situation of the organization and the setting up of targets to be achieved in the context
of an intelligent and knowledgeable anticipation of changes in the environment.
2. It involves financial planning, financial forecasting, provision of finance and formulation
of finance policies which should lead the firm’s survival and success.
3. It is likewise needed to counter the uncertain and imperfect market conditions and
highly competitive business environment.
4. The financial policy should align with the company’s strategic planning.
5. Therefore, the finance manager should take the investment and finance decisions in
consonance with the corporate strategy.