Business Strategy is provided by the front-line businesses in the company. They are customer facing teams, who are able to gauge the growth/shrink plans of their business and they articulate which products in which markets their business lines will focus on to bring value to the company.
Financial Strategy is about setting up a financing plan to fund the business strategy and to mitigate/control the risks that may arise. Treasury plays a key role in setting out the financial strategy of the firm and articulating to the senior management and to the Board if the business strategy can be achieved from a financial perspective. If, for example, the business strategy cannot be optimally funded, the Treasurer needs to advise senior management and perhaps suggest strategy modifications or phasing the strategy in over a longer time period.
A key component to the financial strategy is understanding the various funding sources, both internal and external, available to the firm, the cost of funding, access to funding, risk appetite, impacts to the investors if the business were to fail (i.e. recovery and resolution) etc.
So, Treasury’s funding strategy will cover
Funding Structure - combination of Equity and Debt; Optimal amount of Gearing
Weighted Average Cost of Capital (WACC) - Cost of Funding
Capital Ratios - Regulatory Constraints (relevant time Banks)
Credit Rating constraints
Comments