Strategy formulation

In this lesson

1. 0:00 Strategy formulation and financial management
2. 0:43 Weighted average cost of capital explained
3. 2:28 Six key performance ratios
4. 4:03 Profit margins and profitability measures
5. 5:11 Investor ratios and shareholder returns
6. 8:01 WACC formula and components
7. 10:30 How WACC impacts company value
8. 13:16 Capital gains versus dividend preferences
9. 15:02 Earnings retention and Gordon's growth model
10. 18:47 How reinvestment drives dividend growth

About this lesson

This lesson covers the key performance ratios that measure success—including return on capital employed, asset turnover, profit margins, and return on equity—alongside investor ratios like dividend yield and earnings per share. You'll see why minimising weighted average cost of capital (WACC) directly maximises company value, explored through a worked example showing how reducing WACC from 10% to 8% increases firm value by £2.5 million. The lesson also explores shareholder returns through capital gains and dividends, and introduces Gordon's growth model to show how retained earnings drive future dividend growth. This content is essential for AFM and builds your understanding of how strategic financial decisions create shareholder wealth. It combines ratio analysis, cost of capital principles, and dividend policy to show the complete picture of strategy formulation that examiners expect you to understand and apply.

Duration: 20m