Question

How would you use financial management to support innovation?  

What are some of the obstacles to innovation that you have encountered? How do you propose to resolve these challenges?

Answer 1

Answer:

Financial Management- It is the process of planning, organizing, directing, analyzing and controlling the financial activities of the business. Financial management is very useful in business.

Financial management in innovation- Whenever company is planning some innovation and invention, financial management helps in each and every aspect.

1. Financial management helps in funding the new project/start ups/innovation/invention. It analyzes the cost of capital of different financing alternatives and chooses the best one which has least cost of capital.
2. Financial management helps in taking capital budgeting decisions that is analyzing a project's worth. It calculates the discounted cash flows of the project and compare the total with the initial investment of the project, If net present value is positive then the project is approved.
3. Financial management is also helpful in optimum utilization available resources by keeping in mind the opportunity cost. It helps minimizing the cost of capital and maximizing return.

Some of the obstacles to innovation- Sometimes unfavorable economic conditions, market conditions, government policies and company specific decisions become obstacles to innovation. Higher cost of capital on the way of financing the project is a hazard.

Resolving the challenges- These challenges can be resolved by proper planning and execution. Companies who are in continuous innovation, should have back up with them because if their innovation fails then they can cope up. Companies also can use hedging strategies to minimize interest rate risk, price risk and currency risk.