tailieunhanh - FINANCIAL ANALYSIS: TOOLS AND TECHNIQUES CHAPTER 2

CHAPTER 2 A SYSTEMS CONTEXT FOR FINANCIAL business, large or small, is a system of financial relationships and cash flows, which are activated by management decisions—a key principle we established in Chapter 1. | hel7834 9 27 01 10 59 AM Pagy 1 CHAPTER 2 A SYSTEMS CONTEXT FOR FINANCIAL MANAGEMENT Any business large or small is a system of financial relationships and cash flows which are activated by management decisions a key principle we established in Chapter 1. This concept gained importance in the 1990s when creation of shareholder value emerged as a critical performance challenge and became one of the primary goals of modern management. Creating shareholder value depends on bringing about a positive pattern of cash flows in excess of investor expectations. A business that is successfully managed in all parts as an integrated system will generate such cash flows over time and well into the future thus becoming a value creating company. Given that the basic purpose and value of business activity depend on longterm cash flow generation it s necessary for us to understand more specifically how the dynamics of the integrated business system work. Moreover we must directly relate the various analytical concepts and tools we ll discuss in this book to the business system. As we observed they should assist decisionmakers at all levels in specific ways to support cash flow generation and shareholder value creation. Finally we must provide an appropriate context for the use of commonly available financial information with which such analytical activity is supported. In this chapter we ll expand the picture we ve developed in the previous chapter by presenting three conceptual overviews for the context and meaning of financial economic analysis and the key economic trade-offs it supports. The purpose is to provide the reader with a realistic structure that goes beyond mere coverage of technical tools and methods A graphic representation of the generalized integrated business system showing the relationships and dynamics of the three basic management decision areas which are common to all organizations which have an economic purpose Investment decisions. Copyright 2001