Comment on the following: Strategic Financial Management (SFM) is concerned with taking three key financial decisions.

Answer 6(c) Strategic Financial Management (SFM) is concerned with development of a finance strategy by identification of some key strategic initiatives/measures which are capable of maximizing entity's Net Present Value (NPV) and by allocation of scarce capital resources among the competing opportunities. It is concerned with taking the following three key financial decisions: Investment decision - It is the first and foremost important component of financial strategy. In the course of business, the available finance with business is usually limited but the opportunities to invest are in abundance. Hence the finance manager is required to assess the profitability or return of various individual investment decisions and choose a policy which ensures high liquidity, profitably and growth for organization. Financing decision - Once the requirement of funds has been estimated, the next important step is to determine the sources of finance. The manager should try to maintain a balance between debt and equity so as to ensure minimum risk and maximum profitability for the business. Dividend decision - The third and last function of finance includes dividend decisions. Dividend is that part of profit, which is distributed to shareholders as a reward for high risk investment in business. It is basically concerned with deciding as to how much part of profit will be retained for the future investments and how much part of profit will be distributed among the shareholders.