Examples of Strategic Asset Allocation in the following topics:
-
- Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
- Any business or income producing activity using tangible assets incurs costs related to those assets.
- The costs are allocated in a rational and systematic manner as a depreciation expense to each period in which the asset is used, beginning when the asset is placed in service.
- the expected salvage value, also known as residual value of the asset
- The cost of an asset so allocated is the difference between the amount paid for the asset and the salvage value.
-
- The financial forecast is a key input to strategic planning, a firm's process of defining strategy and making decisions about allocating resources.
- Strategic planning is an organization's process of defining its strategy, or direction, and making decisions about allocating resources to pursue this strategy.
- This is a mathematical model designed to represent a simplified version of the performance of a financial asset or portfolio of a business, project, or any other investment.
- Financial modeling is a general term that means different things to different users; the reference usually relates either to accounting and corporate finance applications, or to quantitative finance applications.Typically, financial modelling is understood to mean an exercise in either asset pricing or corporate finance, of a quantitative nature.
- Financial forecasting is essential for a company's strategic planning, management, and organization.
-
- The notion of real options was developed from the idea that one can view firms' discretionary investment opportunities as a call option on real assets, in much the same way as a financial call option provides decision rights on financial assets.
- The option is "real" because the underlying assets are usually physical and human assets rather than financial securities.
- The commonality in applying option-pricing models for real assets and for financial securities is that the future is uncertain.
- A strategic implication of real options theory is that investment will be discouraged by exogenous uncertainty.
- For example, firms usually undertake research and development investments to strategically position themselves for the economic value from commercialization when market conditions turn favorable.
-
- Asset allocation is the theory that any portfolio should have a set of target weights for different asset classes based on time frame and risk tolerance.
- At this point, we have a total portfolio of $110,600 and an asset mix of roughly 62% stocks and 38% bonds.
- The theory can feature different strategies, including strategic asset allocation, tactical asset allocation, and others, but the ideas are the same as the implications for return.
- A portfolio should consist of a variety of classes of assets to take advantage of zero and negative correlations between those classes, and it should be designed to achieve a target mix of assets that are rebalanced when one grows in relation to another.
- Different returns are expected for different asset allocations given historical averages
-
- From a business perspective, the primary incumbent in an international business environment is the multinational enterprise (MNE), which is a company that pursues strategic success in global production and sales (i.e. operating within a number of country borders).
- These reasons generally fit one (or more) of the following three strategic areas:
- Global Strategic Motivations – Other reasons for expansion to a given country may exist strategically, such as developing new sourcing sites for production or acquiring strategic assets in a given region.
- Before considering such a significant strategic move, management must weigh the external factors that will impact success during a global transition.
- Recognize the complex factors that may impact an organization's strategic decision to expand internationally
-
- Asset Turnover = 1,000,000/5,000,000 = 20%.
- This formula is known by many other names, including DuPont analysis, DuPont identity, the DuPont model, the DuPont method, or the strategic profit model.
- Asset turnover is a financial ratio that measures how efficiently a company uses its assets to generate sales revenue or sales income for the company.
- Companies with low profit margins tend to have high asset turnover, while those with high profit margins tend to have low asset turnover.
- Similar to profit margin, if asset turnover increases, a company will generate more sales per asset owned, once again resulting in a higher overall return on equity.
-
- Marketable securities are an investment option for organizations with strong liquidity and some potential strategic purposes in risk aversion.
- Each of these investment types have different degrees of risk (and respective return), as well as relatively different functions from a strategic investing point of view.
- As the name implies, derivatives derive their value from the performance of an underlying asset.
- These underlying entities can be indexes, assets, interest rates, or a variety of other financial devices.
- The reason they can be so dangerous is due to the fact that, as derivatives of another asset, they can be subjected to an amplification of the risk the underlying asset is subjected to.
-
- These capital gains are profits derived from the sale of investments, which is to say that existing investments where capital is still tied in the underlying asset it not taxable (though it must be reported on the balance sheet for organizations as assets).
- There are various situations where capital gains taxes can be reduced through understanding the legislation and reporting accurately and strategically.
- The sale of an asset at a loss is often a tax deductible, as are other capital losses.
- Donations of assets or capital to charity are tax deductible in most situations.
- Occasionally, the acquisition of certain assets will have the value reevaluated.
-
- Current assets are items a business owns that are either current cash, or assets that can be rapidly converted to cash, such as accounts receivables, cash, cash equivalents, short-term investments, and inventory.
- From a strategic perspective, there is a certain amount of liquidity business would like to maintain at any given moment to ensure that they can capture external opportunities in the market.
- Having easily accessible working capital at any given moment enables organizations to minimize the opportunity cost of foregone opportunities, and careful regulation of working capital strategic criteria can ensure the appropriate amount is available.
-
- Some reasons for failed mergers include lack of strategic fit, difference in corporate culture, lack of due diligence, poor integration, over-optimism, and failed valuation leading to too high of a purchase price.
- A form of corporate cooperation lying between a merger or acquisition and internal growth is called a corporate alliance, or strategic alliance.
- Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.
- A divestiture is the reduction of some kind of asset for either financial or ethical objectives, or the sale of an existing business by a firm.
- In other words, the sum of a firm's individual asset liquidation values exceeds the market value of the firm's combined assets.