Strategy and Financial Planning

A strategy is a plan of action of how to reach an objective. The investment opportunities that enable the company to follow its strategy comprise the company's investment strategy. When the chief financial officer (CFO) looks at the company's investment decisions and considers how to finance them, he or she is budgeting. This chapter explains strategic planning and how financial planning and budgeting are used in the process. The strategic plan is the path that the company intends to follow to achieve its goal, which is to put its assets to their best use, adding value. In that strategic plan, a method to make investments, adds value to the company. Financial planning assists managers assess the impact of a particular strategy on their firm's financial position, its cash flows, its reported earnings, and its need for external financing. Creating a financial plan helps the CFO understand the trade-offs inherent in its investment and financing plans.