Strategic Financial Management

Strategic Financial Management

University of Phoenix

Finance for Managerial Decision Making / FIN 554

Professor Greg Garay

January 17, 2006

Table of Contents

Abstract.........................................................................................................3

Strategic Financial Management.............................................................................4

Working Capital Management...............................................................................4

The Kmart Corporation Debacle.............................................................................5

Long-Term and Short-Term Strategies.............................................................. 6

Financial Performance.................................................................................. 7

To Merge or Not to Merge....................................................................................7

Reasoning for the Merger...............................................................................8

Pros and Cons for the Merger........................................................................ 9

Morale Issues.............................................................................................9

Managing International Acquisitions......................................................................10

AOL-Time Warner Merger.................................................................................10

History of AOL and Time Warner.........................................................................11

Reasoning, Pros, and Cons for the Merger...............................................................12

Short and Long-Term Financial Strategies...............................................................13

Financial Performance.......................................................................................14

The Bust of a Billion Dollar Merger...................................................................... 15

Risk Management............................................................................................16

Morgan Stanley Investment Company.................................................................. 16

Aggressive growth fund................................................................................17

Moderate growth fund................................................................................. 18

Conservative growth fund........................................................................... 18

To Merge or Not to Merge................................................................................. 18

Financial Performance.................................................................................18

Financial Strategies Post Merger...........................................................................19

Abstract

Strategic Financial Management

The majorities of business entities have financial managers who supervise and manage the preparation of financial reports, direct investment activities, as well as implement cash management strategies. Every corporation must closely monitor its cash flows. It is imperative the financial manager is aware of how much cash to keep available, how much raw materials to purchase, and how much credit to extend to its customers. As the world becomes more technologically advanced, financial managers are devoting a great majority of his or her time in the development of strategies and execution of the organization's short and long-term goals.

The purpose of this paper is to discuss the working capital management, managing internal acquisitions, and risk management simulations, identifying the key financial challenges facing the organizations in the simulations. In addition, this paper will identify a Fortune 500 company facing challenges similar to those in the particular simulation, evaluate the company's financial performance, and discuss optimal financial strategies that could improve the financial performance of the specific company. Lastly, this paper will consider whether a merger or acquisition could positively impact the company's strategic outlook, including possible synergies, cost savings, and morale issues.

Working Capital Management

Working capital refers to the cash a firm requires for daily operations and for financing the conversion of raw materials into finished goods, which ultimately will be sold for payment and profit. Working capital management comprises the relationship between a firm's short-term assets and short-term liabilities. The fundamental goal of working capital management is to manage inventories, accounts payable and receivables, and cash to ensure a firm is able to "continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses" (Studyfinance.com, 2005, working capital management section, p.1).

The Working Capital Management simulation involves Lawrence Sports, a $20 million dollar company specializing in the manufacturing and distribution of sporting goods. Recently, Lawrence Sports has begun to financially lose control of the business due to its reduced cash flow and liquidity, increase in bank borrowing, and delaying payments to its vendors and suppliers.. The Chief Financial Officer