1. Influence of
Corporate Strategy
on Investment
Return
Devansh jani
Corporate Finance n Roll No . 17
PGDM Sem III

2. Introduction
• Definition - corporate strategy
• The overall scope and direction of a
corporation and the way in which its
various business operations work
together to achieve particular goals.

3. Investment Return
• The percentage change in value
of the investment over a given
period of time.

4. Corporate Strategy
• Cost of Capital
• The required return necessary to make a capital budgeting
project, such as building a new factory, worthwhile.
• Cost of capital includes the cost of debt and the cost of
equity
• Minimum rate of return which a company is expected to
earn from a proposed project so as to make no reduction in
the earning per share to equity shareholders and its market
price.
• In economic terms there are two approaches to define CoC:
1. It is the borrowing rate of the firm, at which it can acquire
funds to finance the proposed project
2. It is the lending rate which the firm could have earned if the
firm would have invested elsewhere
CoC is a combined cost of each type of source by which a firm
raises funds.

5. Corporate Strategy
• Analyzing existing projects:
 Analyze the existing investments project by
project, by looking at the cash flows on individual
projects and measuring returns against the firm’s
cost of capital.
 We may also look at the projects collectively and
measure the return on the portfolio in comparison
with the firm’s hurdle rate.
 Analyze individual project using cash flows:
 We can measure the returns comparing them with
the returns projected , when we invested in the
projects originally
 We could also measure the NPV or IRR of the project.

6. Corporate Strategy
To Generate Positive Cash Flows
• Cash flow analysis:
• We look at the entire portfolio and attempt to compute the amount
invested vis-à-vis the cash flows generated. The difficulty is that these
investments would have been made at different points in time and due to
the time value of money they cannot be exactly aggregated. We may use
Cash Flow Return on Investment (CFROI).
• Accounting Earnings analysis:
• Accounting earnings based measures are popular since earnings can be
obtained easily from financial statements, their measurement is governed
by common accounting standards, and the earnings for a portfolio of
projects can be linked to the cash flows on these projects, with
assumptions about how much has been reinvested into the firm.

7. Corporate Strategy
• Economic Value Added (EVA)
• It is a value enhancement concept. It is the measure of the
surplus value in rupees created by a firm or project and is
measured by the following:
• Economic Value Added (EVA) = ( Return on capital – Cost of
capital) x Capital Invested
• Improving HR Selection Procedure
Good human resource policy, people will feel that they are
being looked after... for eg.. if the performance appraisal system
in the co. is kept transparent, employees will trust the
management and that will help improve efficiency company has
a policy of flexible working hours, employees will like that
EX : assemble line workers

8. Corporate Strategy
• Amalgamation and Absorption:
As firms face their new status as cash rich companies with
limited investment opportunities, acquiring other firms with a
ready supply of high return projects is an attractive alternative.
Acquisitions come at a cost (1+1=3)
Michael Porter suggests two strategies for competitive advantage:
1. Produce same quality as competitor, at lesser cost
2. Produce higher quality than competitor, at the
same price
Sustainability Of Reforms is Dependent upon
Progressive / Ethical/Customer- friendly
Business practices

9. THANK YOU