Chapter 5 Financial strategies over the life cycle

Transcript:Chapter 5 Financial strategies over the life cycle:
Chapter 5 Financial strategies over the life cycle Corporate Financial Strategy 4th edition Dr Ruth Bender Financial strategies over the life cycle: contents Learning objectives Life cycle model Shake-out period Portfolio matrix incorporating product life cycle [with names] Portfolio matrix incorporating product life cycle [with pictures] Unknowns decrease over the life cycle Net cash flows at different stages of development Modified Ansoff matrix Financial strategy changes over the life cycle Cost of capital in a divisional structure 2 Learning objectives Understand what financial strategy is, and how it can add value. Explain why shareholder value is created by investments with a positive net present value. Appreciate how the relationship between perceived risk and required return governs companies and investors. Differentiate the different models of measuring shareholder value. Explain why share price is not necessarily a good proxy for company value. Outline how agency theory is relevant to corporate finance. 3 Life cycle model 4 Shake-out period 5 Time Historical fast growth in sales Sales / capacity Anticipated sales forecast used to justify capacity increases Overcapacity position Actual sales level Portfolio matrix incorporating product life cycle 6 Relative market share High Low Low/negative High Funding Star Dog Cash cow ? Rate of market growth Based on Boston Consulting Group Portfolio matrix incorporating product life cycle 7 Relative market share High Low Low/negative High Funding Rate of market growth Based on Boston Consulting Group  Unknowns decrease over the life cycle 8 LAUNCH Product risk Market acceptance Market share Size of market at maturity Length of maturity period Maintenance of market share Rate of eventual decline GROWTH Market share Size of market at maturity Length of maturity period Maintenance of market share Rate of eventual decline MATURITY Length of maturity period Maintenance of market share Rate of eventual decline DECLINE Rate of eventual decline Net cash flows at different stages of development 9 GROWTH Cash inflow Sales High Cash outflow Marketing, fixed assets, Working capital, etc. High Net cash flow ? Cash flow starts negative, becoming neutral or positive LAUNCH Cash inflow Sales Low Cash outflow R&D, launch Marketing, fixed assets, etc. High Net cash flow Negative MATURE Cash inflow Sales High Cash outflow Ongoing cost base Low Net cash flow Positive DECLINE Cash inflow Sales Low Cash outflow Maintenance Low Net cash flow Negative Cash flow starts positive, becoming neutral Modified Ansoff matrix 10 Products Existing New New Existing Markets Related