How Financial Strategies Improve the Firm Financial Performance

Introduction

When it comes to getting maximum out of a business, people often debate about which aspects are the most important. This is an ongoing debate and the answer to it is not expected any time soon. But there is one aspect of a business that is equally important to businesses belonging to any country, size, or industry: the financial aspect. The element of corruption and managerial greed always clogged the organization's objectives in such instances. Many of these entities were large corporations considered ‘too big to fail’. When they did, there was a disproportionate amount of academic coverage and research on these companies, widely neglecting the smaller businesses. More recent studies suggest that smaller firms do not have the same amount of information regarding their finances that the larger corporations enjoy.

Importance of Financial Strategies

So often we hear that a company decided not to pursue a modern marketing strategy or it chose a passive HR approach or it is deferring its expansion into new territories. Yes, all these cases are related to different departments such as marketing, HR, and business development, but there is a common thread that is underlying all these cases—lack, or thereof, excess of funds. A company should have a solid strategy regarding who it will manage its liquidity, how it will invest in a new project, what are the financing mechanisms psychology dissertation ideas, what will be the ratio of debt and equity etc. With experienced financial managers, who are well versed in not only the financial knowledge but also the organizational needs of the company in marketing, HR, and other departments where the money is needed.

Different Financial Strategies

Finance is a vast field and likewise, there are hundreds of strategies that a company can follow. The areas where these decisions need to be taken are budgeting, long-term and short-term investing, working capital requirements, loan repayments, dividend policies, and many more. There are two main approaches that a person can take while dealing with a financial situation: whether to be aggressive or passive. Whether to save money or earn more. Whether to cut costs or invest in the business. These are two ends of a spectrum; every business must strike an appropriate balance between the two ends criminology dissertation ideas. Most businesses choose to stay somewhere in between, often varying in different aspects.

How Financial Strategies Affect a Firm’s Performance

Financial strategies can make or break a company. Lousy handling of financing can lead to various disasters including bankruptcy. Almost all the recent examples of companies’ failure included either financial mismanagement or financial fraud. Two consider both ends of the above-mentioned spectrum, we shall take two examples. The first one is Nokia, a leading mobile phone company of its time. The research and development department first came out with the idea of a touchscreen phone and presented this game-changing opportunity to the executives, but it was considered a waste of finances. Fast forward 5 years, Nokia completely lost its relevance in the mobile phone market masters dissertation examples. On the other hand, there are several examples. We saw the 2007-8 crisis where the risk appetite of the companies went through the roof and the situation ended up in a financial disaster.

Conclusion

From the above discussion and according to the majority of experts, a good company is a company with a solid foundation covering its finances. For that, there needs to be effective planning and management. Companies are rapidly releasing this fact and moving towards sustainable business strategies. Effective financial strategies and decision making, focusing on the core objectives such as growth, can significantly reduce the red flags in an organization Royal British Essay Writers. Learning from the examples of the recent past, companies would have not shut down if their financial policies were sound and were put into practice.