ABSTRACT
The Travelodge example underlines the importance of integrating all aspects of strategy and ensuring alignment between strategy and the firm’s financial position. Financial markets, reflecting the interests of shareholders and debt holders, exert a strong influence on firms’ strategies. It is critical that strategic managers have a deep understanding of financial markets and their relationship to strategic management of the firm. To finance operations, firms can use either internally generated funds or external capital. Global firms internally generate between 50 per cent and 80 per cent of the funds required for growth and innovation (free cash flow from existing operations) (Grinblatt and Titman, 2002). Most companies, therefore, supplement internally generated funds with new debt or equity. Managers must be aware of financial market requirements. If a company’s debt is downgraded, new debt may be unobtainable while turbulent equity markets may quash a proposed takeover.
