1. CIMA F3 Financial Strategy
by Dr. Lijuan Xiao
Sep, JXUFE

2. Staff Profile Mini Biography Joined JXUFE as Lecturer in Sep, 2016
Graduated from Durham University (UK) PhD in Accounting
CIMA Membership
UK Higher Education Association--Associate Fellow
Research Area & Interest
Earnings Quality
Earnings Management
Corporate Governance
Office: Room 709, The Northern Building

4. 1. Strategic Financial Management
Concept
It is a framework of financial plans that aim to ensure that the entity’s strategic financial objectives are met.
Maximization of the wealth of its ordinary shareholders.

5. 1. Strategic Financial Management
Concept-continued
The allocation of scarce capital resources among the competing opportunities
Monitoring of the chosen strategy so as to achieve stated objectives.

6. 2. Financial Management Decisions
Maximization of shareholder wealth
Investment Decision
Financing Decision
Dividend Decision

7. 2.1 Investment Decisions Identify investment opportunities
The optimum allocation of scarce funds between different investments
New projects/takeover/merger & acquisition

8. 2.2 Financing Decisions Capital Structure  Long term
Working Capital Management
 Short term
Short-term hedging strategies for the financing of international investments (e.g. foreign currency)

9. 2.3 Dividend Decisions
Share Dividends
Cash Dividends
Stable Dividends
High Dividends
Zero Dividend

10. 2.4 Interrelationships between the three key decisions
Investment Decisions
Financing Decisions
Dividend Decisions
High Growth Companies
High levels of capital investment
Low levels of debt finance
Low or zero dividend
Mature Companies
Moderate to low levels of capital investment
High levels of debt finance
High dividend payout

11. 3. Influences on Financial Strategy
Funding Constraints
lender’s assessment of creditworthiness
Investor Relations
Agency Theory
Business Strategy

12. 4. Regulatory Bodies The Impact of Legislation
Compliance with Legislation
Corporate Governance
UK Corporate Governance Code 2016
Competition Regulation

13. 5. Economic Influences Inflation Interest Rates Exchange Rates
Forecasting Exchange Rates

14. 5.1 Nominal Rates and Real Rates of Interest
Nominal rates of interest are the actual rates of interest paid.
Real rates of interest are rates of interest adjusted for the rate of inflation.

15. 5.1 Nominal Rates and Real Rates of Interest
Fisher Equation
(1+nominal rate of interest)=(1+real rate of interest)*(1+inflation rate)
Real rate of interest=(1+nominal rate of interest)/(1+inflation rate)-1

16. 5.2 Interest Rates and Financing Decisions
When interest rates are low
to borrow more
to borrow for long periods
When interest rates are higher
to pay back loans asap.
to reduce the debt finance

17. 5.3 Exchange Rates
Floating Exchange Rates
Fixed Exchange Rates

18. 5.3 Exchange Rates

19. 5.3 Exchange Rates

20. 5.4 Forecasting Exchange Rates

22. Try Question 2.1 on p.36 & Check the example

24. 6. International Influences
Why invest overseas?
Company
Country
Customer
Competition
Currency

25. 6. International Influences
Any risks ?

26. 7. Impact of Taxation on Financial Strategy
Domestic tax considerations
International tax considerations

31. 7. Impact of Taxation on Financial Strategy
Thin Capitalization
Excess tax relief on interest payments is a result of thin capitalization.
In many tax jurisdictions, they limit the amount of interest that can be claimed for tax relief.

32. 7. Impact of Taxation on Financial Strategy
Taxation Issues
Profits of an overseas branch or agency
Income from foreign securities, for example debentures in overseas companies
Dividends from overseas subsidiaries
Gains made on disposal of foreign assets

33. 7.1 Double Taxation Relief (DTR)
It is an agreement between two countries whereby tax payable on profits made by an overseas subsidiary, including withholding tax, may be deductible against tax on the same profits in another country.

34. 7.1 Double Taxation Relief (DTR)
DTR is given to taxpayers in their country of residence by way of a credit for tax suffered in the country where income arises.
Total exemption from tax;
Taxation will have an impact on strategy.

35. 8. Performance Analysis Ratio Analysis Comparison
Evaluation of financial objectives
Different stakeholders focus on different ratios

36. 8. Performance Analysis Limitations of Ratio Analysis
Availability of comparable information
Use of historical/out-of-date information
Ratios are not definitive
Need for careful interpretation
Manipulation
Other Information (same accounting standards or accounting policies ???)

37. 8. Performance Analysis Categorization of Ratios
Profitability and Return
Debt and Gearing
Liquidity: control of cash and other working capital items
Shareholders’ investment ratios (stock market ratios)

47. Try Question 2.2 on p.48

48. 8.4 Other Information Non-financial Information
The revaluation of non-current assets
Share capital and reserves
Loans and other liabilities
Contingencies
Events after the statement of financial position date

49. 9. Forecasts Cash budgets:
A detailed budget of estimated cash inflows and outflows incorporating both revenues and capital items.
It provides an early warning of liquidity problems.

50. 9. Forecasts Cash budgets:
A company needs to produce a cash budget in order to ensure that there is enough cash within the business to achieve the operational levels set by the functional budgets.

51. 9. Forecasts Estimating a future statement of financial position
Inventory
Receivables
Payables

52. Q & A