Structuring Corporate Financial Policy:
Diagnosis of Problems and Evaluation of Strategies
This note is talking about finding a way to think about corporate financial policies. They depend in the first place on creativity and careful judgment. There are three good elements to achieve this goal and they are mentioned in the paper, they are: description, diagnosis and prescription. The first element is to define the financial policies of an organization. The second element is to design or create a good financial structure, after that to develop the suggested actual financial designs and structures to choose the best among them and look for opportunities to improve it. The last element is the impact of what is taken as a decision in the first and the second phases or elements. According to the phase one and talk in more details, the first task for advisers in the financial field is to understand the current situation of an organization to be able to observe all the tasks and activities and be able to look for solutions. Therefore, the policy of corporate financial is a set of constitutions that are preferred and suggested in order to be able to guide the capital looking for a raise in this task. Policies should change also and adapt according to the changing environment surrounding the organization or firm following these policies.
The elements of financial policy are: the mix of classes of capital, maturity structure of the capital of the organization and the basis of the firm's coupon and dividend payments, currency is one of the elements to put in mind as it defines the aspects all over the globe and the opportunities the firm or organization can have, another element is the level of changing and finding financing alternative to range in products and services to show in the market. The external control is yet another factor or element that focuses on some little outside control, and this is preferred by any management team in an organization or firm. The last element is the distribution, the last element takes cares for how the products or services are distributed, focusing on most of the firm or organization's securities.
After focusing on the elements for making a financial policy, comes the next part. This next step comes by asking whether the decisions taken or the policies based on the elements were the right ones. The first questions that comes is regarding whether this financial policy is creating value for the side of the shareholder's wealth, and minimizes the costs that can be paid from the firm's side. The other question is according the competitive advantage the chosen financial policy can achieve to the firm. The other questions is whether the financial policy sustains vision of the senior management, these tests according to this question provide a forthright experiment of this compact.
After that, comes the part of analyzing financial policy from the viewpoint of the investors. As from this point, the expectations of the investors can inspire all of the decisions related to the management. According to this theory, the firm can be healthy only if the satisfaction of the investors is full. The author pointed out also at the academic history and mentioned it is useful for defining the value-creating theories and strategies. As for the investors, a good or efficient financial structure is that minimizes the weighted-average cost in the firm and maximizes its value and benefit in the same time. There elements for this phase also and they are: cost of debt, cost of equity, debt/equity mix, price/earnings ratio, bond rating, ownership and short position. To bring all of this to a conclusion in this phase it to think like an investor to see what is best for the organization or firm according to the financial issues.
The part of analyzing the financial policy from a competitive perspective comes in flow, it focuses on two important reasons. The first is the standard practice in the industry and the strategic positing of the firm relative to the competition. The second reason is the suggesting the right finance that can be a strategic competitive instrument.
The last part examines the expected requirements and resources for a firm and how to determine and define the goals within a firm. Check and analyze how this is compatible with the profitability, divined goals and growth of the firm.