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CS Professional · Strategic Management and Corporate Finance · Business Policy and Formulation of Functional Strategy

A company's finance head decides that the firm will fund future growth mainly through retained earnings and moderate borrowing, keeping a debt-equity ratio of 1:1 and paying out a steady portion of profits as dividend. Which functional strategy area does this decision primarily belong to?

This is financial strategy. Deciding how growth is funded, the target debt-equity ratio and the dividend payout are capital structure and dividend policy decisions, which belong to the finance function rather than marketing, operations or human resources.

  1. AFinancial strategy covering capital structure and dividend policyCorrect
  2. BMarketing strategy covering pricing and promotion
  3. COperations strategy covering plant layout
  4. DHuman resource strategy covering recruitment

Explanation

Choosing the mix of debt and equity, the target leverage and the payout policy are core financial strategy decisions. The other options relate to different functions: marketing, operations and HR do not decide capital structure or dividends.

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