ABSTRACT

An analysis of a company’s financial position is an indispensable part of any strategic review. The chapter explains that, Decision makers need to know whether or not the company has the level of funding required to finance their strategies and if not, financial resources will have to be raised. The chapter explains the financial structure of companies, how they obtain their capital and its cost. Both share capital and loan capital have their advantages and disadvantages for use, and these are explained. In THE settings it is also important to understand the relative capital intensity of the particular part of the industry being considered because. It has important strategic consequences for managers. A number of techniques, discussed in the chapter, can be used to analyze financial statements: Longitudinal analysis examines trends over time; and cross-sectional analysis, compares a company’s finances against its competitors. Ratio analysis enables understanding of accounts by dividing one accounting number by another. Benchmarking enables comparisons between one company’s performance with similar companies. Foreign exchange risk and cash flow risk are important facets of strategic financial risk for many THE companies, so the chapter provides techniques for analyzing such risks.