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Integrating Strategic Management and Financial Analysis: The Case of Discounted Cash Flow and Optionality

International Journal of Applied Finance For Non-Financial Managers (ISSN: 1742-528X) Volume 2 Issue 3

Robert L. Brown
Idaho State University

and

Steven S. Byers
Idaho State University

An early version of this paper was presented at the Annual Meeting of the American Society of Business and Behavioral Sciences, February 2005

Abstract

This paper discusses recommendations for decision-making when decision-makers rely on two often-inseparable analytical techniques: discounted cash flow analysis and strategic analysis. Specifically, the paper discusses common pitfalls and recommendations for properly incorporating the discount rate into DCF analysis and the interrelationship between strategy and DCF valuation in the area of strategic options. Recognizing the strengths and shortcomings of strategic analysis and DCF analysis as analytical approaches, the paper discusses the advantages of using both DCF analysis and strategic analysis for final decision-making.

Keywords: Management Strategy, Discounted Cash Flow, Valuation, Real Option, Financial Analysis, Practitioner, Decision Making

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