Questions and Answers of Executive Finance

Cash – the vital element– Strategy cannot be delivered without cash – generation and investment.
Interpreting financial statements– Do you understand the directions in which your company is heading? You must be able to read the figures.
Published or statutory accounts– Can reading these help you understand your and other companies’financial strategies?
Accounting rules– Do you know your specific accounting policies?
What underpins financial statements?– How much do you need to know?– Do you need to get closer to your records?– Executives have to state that adequate internal controls exist – are yours
The principal financial statements– How can strategic decisions be made if you don’t know where you are and how you got there?– Understanding profit and how it was generated is vital, as is
Why be in business?– What are your objectives?– What other reasons are there for being in business apart from purely making a return?– What other issues affect strategies apart from finance?–
What does strategy mean to you and your company?– Is everyone clear?
Who leads the alignment process? Are there many leaders?
How are conflicts evidenced and managed?
Do any conflict?
What are your objectives?
Aphorisms.
Are your strategies coordinated and aligned?
Links between the book’s chapters and strategies
Strategies both financial and physical to support objectives
What are your company objectives – where do you fit in?
You can gamble on currency and commodities if you wish or are allowed to do so.
Operating as a group often makes sense, but if it is to hide reality then you have to be clever and prepared to understand the required accounting disclosures.
Sale and leaseback of assets may release much-needed cash but is this just an easy option?
Leasing has many benefits, but the one of accounting illusion is likely to be curtailed.
Gearing can deliver return to investors but with risk attached.
The most likely financial strategy that executives will be involved with is that of gearing either the business or a project.
Hedging strategies.
Foreign currency issues
Special purpose vehicles or entities – off-balance sheet activities
Group structures
Leasing and off-balance sheet finance
Gearing or leverage and the ‘magic’ of gearing
Basic definitions
It may not be relevant in your present role, but do you know what your company’s investment appraisal process is?Too often, project appraisal is coveted by the finance function
Investment appraisal gives answers and clear strategies when solely focusing on return over a life cycle, but there may be other strategies at play
Reliable data and forecasts are essential.
Modelling is not difficult; arithmetic is reliable.
Project appraisal must be carried out.
The many uses of appraisal models.
The need for a consistent and robust process
How much analysis should be carried out?
Risk identification and management
Common appraisal measures
Cash flow models
The time value of money and required rates
The need for investment appraisal
Review your company’s budget reports – are they appropriate?
Review your company’s budgeting process – is it aligned:(a) to what the business does?(b) with the staff involved?
Is your budgeting culture appropriate to the business?
Are budget objectives, reports and responses aligned culturally?
Do budget reports and reviews demand committed response?
Are your budget objectives unequivocal?
The budgeting process is a well-established means of delivering the essential strategies of sales maximization and cost minimization.
Budget culture
Methods of budgeting
Why budget?
Forecasting methods
What does budgeting mean?
If it is management of strategies, does it achieve this – is there action?
What is a report meant to achieve?
Do the reports lead to action – to delivery of your strategies?
Analytics – can there be too much analysis?
KPIs, dashboards and detailed analysis
Sales and costing definitions and models
Management reports – to assist with understanding strategy and its delivery
Cautionary words on modelling
The wide scope of management accounting
statements of cash flows?Looking at your own statements of cash flows or ones to which you can relate, do the cash flows tie in with your understanding of the known strategies?Does your company have
what working capital is and how its components interact;
where cash appears in financial statements;
Cash-flow-focused strategies
Statement of cash flows
Capital cash flows
Insolvency – going concern – overtrading
Cash flows for trading – working capital
Where cash appears in financial statements
You need to appreciate how all accounting concepts and desirable qualities impact on the figures and thus reported strategies.
You cannot use financial statements without a comprehensive understanding of the going concern and accruals concepts.
You need to be conversant with terms such as GAAP, FASB, IASB and IFRS.
It is important to understand the background to accounting standards – the mindset of standard setters.
Look at your company’s strategic report, or objectives, visions, mission statements and strategies. Do these tie in with life within the company, as you know it?
Review your own company accounts – do the balance sheet, income statement and cash flow numbers tie in with what you understand of the business?Look at competitors, suppliers or other accounts.
The need for a published strategic report should be seen in a positive light – it helps us to understand our businesses
Published accounts let you see what competitors or your benchmark‘heroes’ have done.
The content of the published accounts, with the requirements to disclose where there are risks, where judgements and estimates have to be made and strategic goals have to be disclosed, affords
Scope for being creative is more and more limited. Accounting standards, while principles based, are more and more prescriptive as regards accounting treatments and thus creativity is severely
Published financial statements are the public revelation of whether strategies have worked or not. Financial statements reveal what strategies have delivered – growth in net assets and cash
Competitors and other benchmark businesses’ strategies will be revealed – can you learn from them?
Your strategies will be revealed in the numbers and ratios.
The ability to interpret financial statements is a must for executives.
Look at the P/E ratio for your company (if listed).A revealing exercise would be to carry out a five-year historic analysis of your own or a benchmark company’s ratios. With your knowledge of
Look at customers’, suppliers’ or competitors’ ratios.
Calculate ratios for your own company – do these tie in with your knowledge of the business?
Replicate the spreadsheets in this chapter.
Why we have to disclose ratios
External ratios
Analytical review
Working capital and gearing
Ratio analysis
Techniques for interpreting financial statements
Future developments
The strategic report
Developments in financial reporting

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