Business Financial Cycles and Strategic Planning

Posted on Mar 29, 2025 in Business Administration and Management (BAM)

Funding Sources and Costs

When selecting funding sources, consider the type of investment (long or short-term) and the desired level of debt. Funding can come from the company’s own resources or external sources. The cost of funding varies: long-term funding typically has higher costs, while short-term funding has lower costs. This also depends on arrangements with suppliers (proveïdors).

Economic and Financial Subperiods

The economic cycle comprises the following subperiods:

  • (PA) Subperíode d’aprovisionament: Storage of goods.
  • (CG) Subperíode de cobrament: Billing customers after the sale of goods.

The financial subperiod is calculated as the economic subperiod minus the (PP) Subperíode de pagament a proveïdors (payment period to suppliers).

Average Maturity Period (PME)

The Període Mitjà de Maduració (PME) is the time it typically takes a company to recover the money invested in its production process. It comprises five subperiods:

  1. Període mitjà d’aprovisionament: Average number of days raw materials are held in the warehouse.
  2. Període mitjà de fabricació: Average number of days taken to manufacture the product.
  3. Període mitjà de venda: Average number of days it takes to sell products.
  4. Període mitjà de cobrament: Average number of days it takes to collect payment from customers.
  5. Període mitjà de pagament: Average number of days taken to pay suppliers.

Essentially, the PME represents the length of the entire operating cycle, from the entry of raw materials into the warehouse until cash is collected from customers’ invoices and letters.

Financial Maturity Period (PMF) and Working Capital (FM)

The Període Mitjà de Maduració Financer (PMF) is the time the company takes to recover money invested in purchasing materials for production; it’s the number of days the company needs external financing. It represents the duration for which current assets complete one cycle.

The Fons de Maniobra (FM), or Working Capital, is the set of resources needed to finance the company during the financial maturity period (PMF). Therefore, a shorter maturity period requires less FM.

Business Strategy Concepts

Strategy Definition

Estratègia: A general plan of action designed to achieve objectives.

Strategic Management

Direcció Estratègica: The process of managing a business strategy (or set of strategies) within the company. It involves adapting to a changing environment and reacting to competition, considering the long term, with the main objective of ensuring the company’s success by improving its competitive position or solving threats.

Levels of Decision Making

Decision-making (Presa de Decisions) occurs at different levels:

  • Corporate Level: Decisions related to the overall purpose or scope of the company, aiming to satisfy owner/manager expectations and add value. These decisions set the reference framework, are global, represent the highest level of strategic management, and have a long-term dimension.
  • Business Level: Decisions concerning more specific aspects, like defining elements that make the company’s products competitive within their market scope. These are more concrete and have a medium-term dimension.
  • Operational Level: Decisions focused on efficiently managing available resources, whether at a departmental or company-wide level, referencing the overall strategy. These relate to specific day-to-day activities and have a short-term dimension.

Phases of Strategic Management

The key phases include:

  • Goal setting
  • Evaluation of internal resources
  • Assessment of external resources
  • Analysis of the competitive environment
  • Preparation of future scenarios
  • Strategy formulation
  • Evaluation of strategic alternatives
  • Strategic control

Competitive Advantage and Generic Strategies

Avantatge Competitiu: The goal of competitive strategy is to obtain a sustainable competitive advantage – a quality that makes the company perform better than its competition consistently (fort).

Strategic Tools/Sources:

  • Differentiation
  • Cost Leadership
  • Focus (Enfocament)

Generic Strategies:

  • Low Prices (Cost Leadership)
  • Differentiation
  • Hybrid (Reduced-price differentiation)
  • Low Production Costs
  • Targeted Differentiation (Focus)