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Strategic Finance: Unveiling Value Creation in Capital Markets

Explore the intricate world of finance and how it bridges strategic goals to value creation in capital markets. Understand market efficiencies, intrinsic value, and the crucial role of CFOs in preserving capital and making informed financial decisions. Dive into practical examples like the Anheuser-Busch Project to grasp financial analysis techniques and the significance of financing decisions in value maximization.

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Strategic Finance: Unveiling Value Creation in Capital Markets

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  1. Finance Transcends All If the CEO believes that Finance is a specialized interest then the CFO. The key is to articulate strategic goals into Value.

  2. Capital Constrained? • Incentives to Preserve Capital • Budgeting Process

  3. Max Value - What is Guide? Important Role of Market Efficiency. Now market prices may deviate substantially from “intrinsic value.’’ • Liquidity • Intrinsic value impossible to pin down. But market provides objective benchmark Q: Do we respond to market fads?

  4. Anheuser-Busch Project • Start with Historical Financial Statements • Decide on Level of Precision • Decide on needed Decomposition • Divisions • Geography • Build Economically Meaningful Picture of Past (Free Cash Flows) • Ratios - Be imaginative

  5. Anheuser-Busch Project (cont’d.) • Project Cash Flows -- Value • Key Value Drivers • Strategic Analysis

  6. Financing Starting Point for Developing Intuition is that in the absence of market frictions, how economic activity is financed is irrelevant to value. This is a result of the absence of arbitrage. The shareholder could do /undo any financing by the firm. (An example of Larry Summers’ “Catsup Economics.” • An example of this irrelevance is in the Excel spreadsheet M&M.

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