Strategic planning is borne out of the fact that all markets - capital, labor, and product are imperfect and hence they need effective measures to gain profitability. That is why strategies are made to manage business organizations in imperfect and changing markets. It is also believed that imperfections and changes in the markets provide opportunities that can be exploited by business firms financially.In general strategic financial planning, managers are expected to perform the following two tasks −Allocation of funds, andGeneration of fundsAllocation of funds is an investment decision, whereas generation of funds is a financial decision.Financial theories make two assumptions ... Read More

The BCG model is the simplest tool for businesses to understand their strategic position in the business lifecycle. The model helps business firms understand what they must do in order to achieve more profits in accordance with their position in the BCG matrix.The implications of the model in strategic financial planning can be discussed by breaking the matrix into the given four blocks that represent four lifecycle conditions of a product or project finance.These four segments or blocks are as follows −Stars segmentThe ‘Stars’ segment implies market dominance in terms of both market share and market growth. Companies in the ... Read More

What is a BCG Model?The Boston Consulting Group (BCG) put forward a model of corporate posters of companies at different stages of their business position. It is the BCG model that charts market shares against market growth.The BCG model, also known as the Growth-Share Matrix, is a market model which assumes that a product’s market share shows its cash generating power.Both Market share and Market growth have high and low phases. Therefore, there are four options in terms of cash of the corporate structure in the BCG model. They are as follows −Block 1 - StarsThe first block represents both ... Read More

What is Strategic Planning?Strategic planning ensures that a company’s portfolio is balanced in terms of profit, overall risk, and cash flows. Strategic planning is, therefore, the tool by which the progress of a company can be ensured.Strategic planning decides the strategy. Planning is done at the top level of a company while the strategy is applied at the ground level where managers apply the strategies as directed by the top-level managers.However, businesses often make strategic plans and see them fail while executed. The fault is not in the plan, but of the people who are going to execute it. In ... Read More

Although strategy and strategic plan are considered as the same, it is wrong to assume so. There are some distinct differences between strategy and strategic plans. Strategy and strategic plan are the parts of financial planning wherein companies try to chart their future course of action depending on the resources that the company has under its control. Let’s look at strategy and strategic planning individually to understand what they mean and what their basic differences are.What is Strategy?Strategy is the base of planning but it is not the planning itself. The strategy provides the platform for the company to build ... Read More

What is Discriminant Analysis?Discriminant analysis is a widely used tool in Machine Learning, Statistics, and Finance. It is a manner to classify the targets based on some assumptions, and then use them to predict the future of a process. As is obvious, since investors and analysts want to predict a company’s power in the future, the tool is of prime importance to them.The discriminant analysis relies upon continuous independent variables to form a pattern that shows relationships between two parameters or predictive equations that may satisfy the relationship for the data sets. These equations are then used to classify the ... Read More

Parametric Methods of Efficiency Vs Non-Parametric Methods of EfficiencyParametric and non-parametric methods of efficiency measurement have gained significant momentum in the current decade. However, the choice of the method for efficiency management has been a matter of lengthy debate. The parametric method has the advantage of being free from the random noise of inefficiency. However, separating true noise from the process may be a restrictive process.The non-parametric method has the advantage of justifying the axiomatic properties. It also does not have as many restrictive properties as that in the parametric method. However, non-parametric methods do not differentiate between true inefficiency ... Read More

What is Ratio Analysis?Ratio analysis is a good way of comparing the conditions of a business with its peers. It helps businesses understand their own strengths and weaknesses.Ratio analysis are basically tools to measure the various relationships between two or more financial items. It also helps businesses compare themselves with companies of scale. However, there are some drawbacks of ratio analysis that affect its efficiency.Limitations of Ratio AnalysisThere are some prominent drawbacks of ratio analysis which analysts and investors should be aware of. They are as follows −Base of ComparisonAlthough ratio analysis is a good way to measure the performances ... Read More

What is Inter-Firm Comparisons?Financial ratios can be compared with one another in order to get a gist of the performance and other attributes of a company in relation to the other major firms. Such a performance of a company that shows the financial ratios is known as Cross-Sectional Analysis or Inter-Firm Comparison.In an Inter-Firm Comparison chart, various attributes such as Market Share, Return on Equity (ROE), Net Worth (NW), Capital Employed (CE), Net Sales (NS), Profit Before Interest and Taxes (PBIT), etc., are put in one table. This table helps one to see the performance and efficiency of one company ... Read More

Businesses use past and present data in order to find a pattern and predict the future. This review of past and present forms of data is usually known as Trend Analysis which is one of the most popular tools in the hands of financial analysts and managers. Ratio analysis, on the other hand, are tools to measure the various relationships between two or more financial items.Financial ratios can be used to represent trend analysis. In fact, financial ratios are the backbone of trend analysis.Trend Analysis Vs Ratio AnalysisFollowing are the differences between Trend analysis and Ratio analysis −Based on the ... Read More