Basically, Strategic Corporate Finance is related to identifying possible strategies and methodologies that can maximize the market value of a particular organization. It not only involves allocation of limited sources of capital among the competing opportunities, but also encompasses monitoring and implementation of chosen strategies for achieving the desired objectives.
Financial decisions: The financial decisions taken under Strategic Corporate Finance deal with the sources of finance and are a combination of debt capital and equity capital. If alterations are possible in the total value of the organization by changing the company’s capital structure, then existence of the best financial mix will be seen. In that scenario, the market value of the organization will be maximized.
Investment decisions: These decisions involve profitable usage of the company’s funds, particularly in the long-term capital projects. As the benefits that are going to come with such projects cannot be forecasted, these investment decisions usually involve a lot of risk. That is why, these projects are evaluated with relation to their anticipated risks and returns. After all, these factors play a great role in determining the company’s ultimate market value. For maximizing this value, the financial managers take most interest in the projects that involve minimum risks and maximum returns. For making any investment decisions, it is imperative to have a clear understanding of portfolio theory, capital structure and cost of capital of the organization.
Dividend decisions: These decisions determine the division of income between payments to the share holders and re-investment in the organization. Retained income is a significant source of income for financing corporate growth and dividends constitute cash flows which are accrued to the share holders. Although both dividends and growth are desirable, the goals are usually conflicting to each other. Higher rate of dividends means less retained income and thus, slower growth rate in future income and share costs. The finance managers are responsible for providing reasonable answers to these conflicts.
It has to be clear in mind that the concept of Corporate Finance is based upon the assumption that management aims at maximizing the market value of the organization. More explicitly, it has been settled in the field of finance that the primary objective of the company should be maximizing its wealth for distributing among its share holders. After all, the moral objective of any company is to keep its clients, customers and share holders contented. Only then it will be able to prosper in this competitive market.