Strategic Financial Planning Flashcards

A firm wants to align its capital allocation with its long-term mission rather than short-term earnings. Which planning approach best supports this?

Answer: Strategic financial planning tied to corporate strategy

Strategic financial planning links capital allocation decisions to the organization's long-term mission and strategy.

Which document translates a company's strategic goals into multi-year financial projections?

Answer: A long-range financial plan

A long-range financial plan converts strategic objectives into multi-year revenue, cost, and investment projections.

When evaluating a strategic investment, which metric incorporates the time value of money?

Answer: Net present value (NPV)

NPV discounts future cash flows to present value, explicitly reflecting the time value of money.

A strategic plan assumes 5% annual revenue growth, but a recession is possible. What technique tests the plan under different conditions?

Answer: Scenario analysis

Scenario analysis evaluates how the plan performs under alternative future conditions such as a recession.

Which of the following is the primary purpose of a SWOT analysis in strategic financial planning?

Answer: Identify strengths, weaknesses, opportunities, and threats

SWOT analysis assesses internal strengths and weaknesses and external opportunities and threats to inform strategy.

A company's weighted average cost of capital (WACC) is used in strategic planning primarily to:

Answer: Set the hurdle rate for evaluating investments

WACC serves as the minimum acceptable rate of return (hurdle rate) for evaluating strategic investments.

Which statement best describes the relationship between strategic planning and budgeting?

Answer: Budgeting allocates short-term resources to execute the strategic plan

Budgeting operationalizes the strategic plan by allocating short-term resources to achieve long-term goals.