Strategic Financial Management Essay Example | Topics and Well Written Essays - 1500 words

Strategic Financial Management - Essay Example Hence, finance can be interpreted as lifeblood of business (Emmanuel, 2010, p.32). Finance also helps the management in the process of controlling, planning, decision making, evaluation and performance appraisal etc. Therefore, management must control and plan its financial activities to develop a growth oriented organisational (Collier, 2003, p.42). In order to execute operational activities, companies needs to investment for various purposes like capital investments and operational investments, and in this process it is very necessary to evaluate performance of investments. There are some financial techniques which are very helpful in evaluating the performance of investments like capital budgeting and ratio analysis (Williamson, Cooke and Jenkins, 2003, p123). This paper will attempt to present various techniques of capital investments and project appraisal for a business organisation. At first, importance and understanding of capital appraisal techniques will be explained. The ne xt section will present brief descriptions of various project and capital investment techniques. Finally, the conclusion will sum up the entire discussion and analysis. Capital investment and Project Appraisal Since last two decades, there have been significant changes in the field of finance and its various techniques. The modern organisations are using multiple financial theories, models, and tools for enhancing the financial activities. The main reason behind this development is the increasing academic concern. Constant innovation in financial management techniques has facilitated the financial related activities. Besides, managers have to take decisions for allocation of resources in capital investments (Chadwick, 1993, p.143). Hence, the quantitative performance appraisal techniques have also been modified and these techniques have become more accurate and efficient to measure the effectiveness of capital investments. Management or the decision makers have to understand the imp ortant of decision theories to realize the necessity of decision making theories. According to Rapoport (1989), â€Å"decision theory deals with situations in which one or more actors must make choices among given alternatives† (Serfas, 2010, p.16). Before explaining various techniques for capital investment appraisal, it is very necessary to understand the importance of capital investment appraisal for a business organisation. The decision making process for investment is very necessary as it help management to determine the future profitability of any project or capital investments. Michael Pogue defined investment decision as â€Å"involving the company making cash outlay with the aim of receiving future cash inflows† (Pogue, 2010, p.10). Therefore, the process of investment decision making should go through a proper stages for enhancing its effectiveness. The Institute of Charted Accountants has defined four vital stages in this process. These are â€Å"originatio n of proposals†, â€Å"project screening†, â€Å"and analysis and acceptance† and â€Å"monitoring and review" (Institute of Charted Accountants, 2008, p.278). While making an investment decision of project appraisal, it is necessary to consider various aspects of finance to generate relevant and accurate decisions. There are certain macro and micro economic factors that must be considered in