The New CFO Financial Leadership Manual E-Book

Steven M. Bragg

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Corporate F&A
• Sprache: Englisch

Seitenzahl: 1028

Veröffentlichungsjahr: 2010

Beschreibung

The comprehensive guide for CFOs who need an overview of leadership basics from strategies to management improvement tips Filled with pragmatic insights and proactive strategies, The New CFO Financial Leadership Manual, Third Edition is destined to become your essential desktop companion. This thorough guidebook is filled with best practices to help you, as CFO, to improve efficiency, mitigate risks, and keep your organization competitive. * Includes updated information on the relationship of the CFO with the Treasurer, registration statements and Fedwire payments, acquisitions integration, legal types of acquisitions, and government regulations * Contains control flowcharts for the main accounting cycles * Provides new chapters on Investor Relations and Risk Management for Foreign Exchange and Interest Rates * Features an itemized list of the key tasks every new CFO should complete when first entering the position, a checklist of 100 performance measures, and a detailed discussion of employee compensation plans The reference CFOs and other financial managers can turn to for quick answers to questions they have as well as to help them plan their financial strategy, The New CFO Financial Leadership Manual, Third Edition is mandatory reading for every CFO wanting to play a strategic role in their organization.

Leseprobe

Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Bragg, Steven M.

The new CFO financial leadership manual / Steven M. Bragg. — 3rd ed.

p. cm. – (Wiley corporate f&a; 556)

Includes index.

ISBN 978-0-470-88256-6 (hardback); 978-0-470-91839-5 (ebk); 978-0-470-91840-1 (ebk); 978-0-470-91838-8 (ebk)

1. Chief financial officers—Handbooks, manuals, etc. 2. Corporations—Finance—

Management—Handbooks, manuals, etc. I. Title. II. Title: CFO financial leadership manual.

HG4027.35.B73 2010

658.15–dc22

2010021352

Contents

Cover

Title Page

Copyright

Preface

Part One: Overview

Chapter 1: CFO's Place in the Corporation

First Days in the Position

Specific CFO Responsibilities

Overview of the Change Management Process

Differences between the Controller and CFO Positions

Relationship of the Controller to the CFO

Other Direct Reports: The Treasurer

Other Direct Reports: The Investor Relations Officer

Summary

Chapter 2: Financial Strategy

Cash

Investments

Working Capital

Inventory: Inventory Reduction Decision

Fixed Assets: Lease versus Buy Decisions

Payables

Debt

Equity

Products: Product Elimination Decisions

Fixed Expenses: Step Costing Decisions

Payroll Expenses: Temporary Labor versus Permanent Staffing Decisions

Entities: Divestiture Decisions

Systems: When to Use Throughput Costing

High-Volume, Low-Price Sale Decisions Using Throughput Costing

Capital Budgeting Decisions Using Throughput Costing

Make versus Buy Decisions Using Throughput Costing

Summary

Chapter 3: Tax Strategy

Accumulated Earnings Tax

Cash Method of Accounting

Inventory Valuation

Mergers and Acquisitions

Net Operating Loss Carryforwards

Nexus

Project Costing

S Corporation

Sales and Use Taxes

Transfer Pricing

Unemployment Taxes

Summary

Chapter 4: Information Technology Strategy

Reasons for Devising an Information Technology Strategy

Developing the Information Technology Strategy

Technical Strategies

Specific Applications

Summary

Part Two: Accounting

Chapter 5: Performance Measurement Systems

Creating a Performance Measurement System

Asset Utilization Measurements

Operating Performance Measurements

Cash Flow Measurements

Liquidity Measurements

Solvency Measurements

Return on Investment Measurements

Market Performance Measurements

Summary

Chapter 6: Control Systems

Need for Control Systems

Types of Fraud

Key Controls

When to Eliminate Controls

Summary

Chapter 7: Audit Function

Composition of the Audit Committee

Role of the Audit Committee

Purpose of the External Auditors

Dealing with External Auditors

Impact of the Sarbanes-Oxley Act on the Audit Function

Role of the Internal Audit Function

Managing the Internal Audit Function

Summary

Part Three: Financial Analysis

Chapter 8: Cost of Capital

Components

Calculating the Cost of Debt

Calculating the Cost of Equity

Calculating the Weighted Cost of Capital

Incremental Cost of Capital

Using the Cost of Capital in Special Situations

Modifying the Cost of Capital to Enhance Shareholder Value

Strategizing Cost of Capital Reductions

Summary

Chapter 9: Capital Budgeting

Hurdle Rate

Payback Period

Net Present Value

Internal Rate of Return

Throughput-Based Capital Budgeting

Problems with the Capital Budget Approval Process

Cash Flow Modeling Issues

Funding Decisions for Research and Development Projects

Capital Investment Proposal Form

Post-Completion Project Analysis

Summary

Chapter 10: Other Financial Analysis Topics

Risk Analysis

Capacity Utilization

Breakeven Analysis

Business Cycle Forecasting

Summary

Part Four: Funding

Chapter 11: Cash Management and Consolidation

Cash Forecasting Model

Information Sources for the Cash Forecast

Measuring Cash Forecast Accuracy

Cash Forecasting Automation

Cash Concentration Overview

Physical Sweeping

Notional Pooling

Comparison of Account Sweeping and Notional Pooling

Cash Management Controls

Summary

Chapter 12: Investing Excess Funds

Investment Criteria

Investment Restrictions

Investment Options

Investment Strategies

Summary

Chapter 13: Obtaining Debt Financing

Management of Financing Issues

Bank Relations

Accounts Payable Payment Delay

Accounts Receivable Collection Acceleration

Credit Cards

Employee Trade-Offs

Factoring

Field Warehouse Financing

Floor Planning

Inventory Reduction

Lease

Line of Credit

Loans

Merchant Card Advances

Preferred Stock

Sale and Leaseback

Summary

Chapter 14: Obtaining Equity Financing

Types of Stock

Private Placement of Stock

Layout of the Offering Memorandum

Establishing a Valuation for the Offering Memorandum

Swapping Stock For Expenses

Swapping Stock for Cash

Stock Warrants

Stock Subscriptions

Private Investment in Public Equity

Buying Back Shares

Rule 144

Rule 10b5-1

Summary

Part Five: Publicly Held Company

Chapter 15: Initial Public Offering

Reasons to Go Public

Reasons Not to Go Public

Cost of an IPO

Preparing for the IPO

Finding an Underwriter

Registering for and Completing the IPO

Alternatives for Selling Securities

Trading on an Exchange

American Stock Exchange

Overview of the NASDAQ

New York Stock Exchange

Comparing the Stock Exchanges

Over-the-Counter Stocks

Summary

Chapter 16: Reports to the Securities and Exchange Commission

Overview

Form 8-K

Form 10-Q and Form 10-K

Form S-1

Form S-3

Form S-8

Shelf Registration

Declaring a Registration Statement Effective

Reporting Insider Securities Ownership and Trading

EDGAR Filing System

Fedwire Payments

Summary

Chapter 17: Investment Community

Introduction

Analyst's Perspective

Finding the Right Analyst

Sell Side: Analysts

Negative Analyst Report

Sell Side: Brokers

Sell Side: Investment Bankers

Sell Side: Investor Relations Specialists

Buy Side: Types of Investors

Buy Side: Institutional Investors

Buy Side: Individual Investors

Buy Side: Presentations to Investors

Summary

Chapter 18: Taking a Company Private

Going Private Transaction

Rule 13e-3

Filling Out Schedule 13E-3

300-Shareholder Limit

Form 15

Summary

Part Six: Management

Chapter 19: Risk Management—General Concepts

Risk Management Policies

Risk Management Planning

Manager of Risk Management

Risk Management Procedures

Types of Insurance Companies

Evaluating the Health of an Insurance Carrier

Claims Administration

Insurance Files

Annual Risk Management Report

Summary

Chapter 20: Risk Management: Foreign Exchange

Foreign Exchange Quote Terminology

Nature of Foreign Exchange Risk

Data Collection for Foreign Exchange Risk Management

Foreign Exchange Hedging Strategies

Accept the Risk

Insist on Home Currency Payment

Currency Surcharges

Get Paid on Time

Foreign Currency Loans

Sourcing Changes

Foreign Currency Accounts

Unilateral, Bilateral, and Multilateral Netting Arrangements

Forward Exchange Contracts

Currency Futures

Currency Options

Currency Swaps

Proxy Hedging

Summary

Chapter 21: Outsourcing the Accounting and Finance Functions

Advantages and Disadvantages of Outsourcing

Contractual Issues

Transition Issues

Controlling Supplier Performance

Measuring Outsourced Activities

Managing Suppliers

Dropping Suppliers

Summary

Chapter 22: Mergers and Acquisitions

Evaluating Acquisition Targets

Complexity Analysis

Evaluate Acquisition Targets with Alliances

Valuing an Acquisition Target

Alternative Valuation Methods

Control Premium

Synergy Gains

Discounted Cash Flow (DCF) Model

Constructing Cash Flow Scenarios

Cash Flow Adjusting Factors

Earnout

Qualitative Factors

Which Valuation Method Is Best?

Method of Payment

Types of Acquisitions

Tax Implications of an Acquisition

Asset Acquisition

Type “A” Reorganization

Type “B” Reorganization

Type “C” Reorganization

Type “D” Reorganization

Triangular Merger

Reverse Triangular Merger

Terms of the Acquisition Agreement

When to Use an Investment Banker

Summary

Part Seven: Other Topics

Chapter 23: Employee Compensation

Deferred Compensation

Life Insurance

Stock Appreciation Rights

Stock Options

Restricted Stock Units

Bonus Sliding Scale

Cut Benefit Costs with a Captive Insurance Company

Summary

Chapter 24: BANKRUPTCY

Applicable Bankruptcy Laws

Players in the Bankruptcy Drama

Creditor and Shareholder Payment Priorities

Bankruptcy Sequence of Events

Tax Liabilities in a Bankruptcy

Special Bankruptcy Rules

Bankruptcy Act of 2005

Alternatives to Bankruptcy

Summary

Appendix A: New CFO Checklist

Appendix B: Performance Measurement Checklist

Appendix C: Due Diligence Checklist

Industry Overview

Corporate Overview

Organization and General Corporate Issues

Capitalization and Significant Subsidiaries

Employees

Revenue

Assets

Liabilities

Financial Statements

Internet

Software Development

Marketing

Sales

Research and Development

Payroll

Human Resources

Treasury

Culture

Complexity

Other

About the Author

Index

Preface

The third edition of the New CFO Financial Leadership Manual is designed to give the chief financial officer (CFO) a complete overview of his or her place in the corporation, and to provide strategies for how to handle strategy decisions related to a variety of financial, tax, risk, and information technology issues. Some of the questions that Chapters 1 through 4 answer include:

What should I do during my first days on the job?What are my specific responsibilities?How do I increase the company's return on assets?When should I issue convertible securities?What factors should I consider in regard to a step costing decision?When can I use net operating loss tax carryforwards?How do I decide which products to eliminate?How can I use transfer pricing to reduce income taxes?What specific information technologies should I install for a certain type of business, such as a low-cost producer or rapid product innovator?

The CFO must also become involved in a variety of accounting topics, though not at the transactional level of detail with which a controller will be occupied. Key areas of concern are the development and maintenance of performance measurement and control systems. The CFO must also interact with the internal and external auditors. Chapters 5 through 7 address these topics, and yield answers to all of the following questions, as well as many more:

How do I set up a performance measurement system?What are the best performance measurements to install for tracking a variety of accounting and financial issues?What types of fraud can be committed, and what kinds of controls can reduce their likelihood of occurrence?Which key controls should I install?How do I identify and eliminate unnecessary controls?What is the impact of Sarbanes-Oxley on my company?Who serves on the audit committee, and what is its role?How do I deal with the external and internal auditors?

One of the CFO's primary tasks is the analysis of a wide range of financial issues, resulting in recommendations for action to the management team. Chapters 8 through 10 address such topics as the cost of capital, capital budgeting, risk analysis, capacity utilization, and breakeven analysis. With these chapters in hand, one can answer the following questions:

How do I calculate my company's cost of capital?How can I modify the cost of capital to increase shareholder value?What are the various methods for determining the value of proposed capital projects?How do I calculate net present value, the internal rate of return, and the payback period?How do I allocate funding to research and development projects?How do I determine capacity utilization, and what decisions can I make with this information?How can breakeven analysis be used to optimize profitability?

A CFO is sometimes given the primary task of obtaining funding. In this role, the CFO must know how to manage existing cash flows, invest excess funds, and obtain both debt and equity financing. These topics are addressed by Chapters 12 through 14, which provide answers to all of the following questions, and more:

How do I construct a cash forecasting model and measure its accuracy?How do I control cash flows?What investment restrictions should I recommend to the board of directors?What are good short-term investment options?What are the various types of available debt financing?How do I conduct a private placement of stock?How do I arrange a private investment in public equity?What information goes into an offering memorandum?How do I place a value on offered stock?

The goal of many larger companies is to go public, which gives their shareholders a convenient method to sell their ownership interests, and which also gives the company a potential source of new capital. The CFO should know the mechanics of conducting an initial public offering, as well as how to subsequently file a variety of reports with the Securities and Exchange Commission (SEC). The CFO also needs to know how to interact with the investment community, and, if the burdens of being publicly held are too great, how to take the company private again. These topics are covered in Chapters 15 through 18, which answer the following questions, and a great deal more:

What steps do I follow to complete an initial public offering?What reports do I file with the SEC, and what information should I include in them?What forms are available for registering stock, and which one works best for me?When should I use a shelf registration?How do I make a Fedwire payment?How do I deal with the buy side and sell side of the investment community?How do I file with the SEC to take a company private?

Though a CFO can certainly be of great value to a company by properly managing its flow of funds, there are also a number of management areas in which he or she can enhance operations. These are addressed in Chapters 19 through 22, which discuss risk management in general, foreign exchange risk management in particular, outsourcing, and mergers and acquisitions. By perusing them, one can find answers to the following questions:

How do I engage in risk planning?What types of companywide policies and procedures should I install to mitigate risks?How do I evaluate insurance carriers?What foreign exchange hedging strategies are available?What are the advantages and disadvantages of outsourcing various aspects of the accounting and finance functions, and which contractual and transitional issues should I be aware of?How do I evaluate acquisition targets?How do I place a value on an acquisition target?What legal forms of acquisition are available?

There are also several topics that may require some degree of expertise by the CFO from time to time. One is employee compensation, which is addressed in Chapter 23. It covers such topics as deferred compensation, life insurance, stock appreciation rights, stock options, and the bonus sliding scale. An issue that a CFO certainly hopes never to experience is bankruptcy, which is described in Chapter 24. This chapter describes the sequence of events in a typical bankruptcy proceeding, as well as special bankruptcy rules, payment priorities, the parties that typically become involved in the process, and the impact of the Bankruptcy Act of 2005.

The CFO may also require checklists to perform certain aspects of the job. Toward this end, Appendix A contains a checklist that itemizes the usual priority of action items required during the first days of fitting into a new CFO position. Appendix B contains a summary-level list of performance measurements that are useful as a reference for those CFOs who are constructing performance measurement systems. Finally, Appendix C contains an extensive due diligence checklist that is most helpful for reviewing the operations of a potential acquisition candidate.

In total, this book is a comprehensive guidebook for the CFO who needs an overview of strategies, measurement and control systems, financial analysis tools, funding sources, and management improvement tips that will help provide the greatest possible value to the company.

Steven M. Bragg

Centennial, Colorado

December 2010

Part One

Overview

Chapter 1

CFO's Place in the Corporation

Years ago, chief executive officers (CEOs) were satisfied with finance chiefs who could manage Wall Street analysts, implement financial controls, manage initial public offerings (IPOs), and communicate with the board of directors—who, in short, possessed strong financial skills. However, in today's business environment, the ability to change quickly has become a necessity for growth, if not for survival. CEOs are no longer satisfied with financial acumen from their CFOs. They are demanding more from their finance chiefs, looking instead for people who can fill a multitude of roles: business partner, strategic visionary, communicator, confidant, and creator of value. This chapter addresses the place of the CFO in the corporation, describing how to fit into this new and expanded role. It also describes the roles of three key subordinates—the controller, treasurer, and investor relations officer.

First Days in the Position

You have just been hired into the CFO position and have arrived at the offices of your new company. What do you do? Though it is certainly impressive (to you) to barge in like Napoleon, you might want to consider a different approach that will calm down your new subordinates as well as make them feel that you are someone they can work with. Here are some suggestions for how to handle the critical first few days on the job:

Meet with employees. This is the number-one activity by far. Determine who the key people in the organization are and block out lots of time to meet with them. This certainly includes the entire management team, but it is even better to build relationships far down into the corporate ranks. Get to know the warehouse manager, the purchasing staff, salespeople, and engineers. Always ask who else you should talk to in order to obtain a broad-based view of the company and its problems and strengths. By establishing and maintaining these linkages, you will have great sources of information that circumvent the usual communication channels.Do not review paperwork. Though you might be tempted to lock yourself up in an office and pore through management reports and statistics, meeting people is the top priority. Save this task for after hours and weekends, when there is no one on hand to meet with.Wait before making major decisions. The first few months on the job are your assigned “honeymoon period,” during which the staff will be most accepting of you. Do not shorten the period by making ill-considered decisions. The best approach is to come up with possible solutions, sleep on them, and discuss them with key staff before making any announcements that would be hard to retract.Set priorities. As a result of your meetings, compile an initial list of work priorities, which should include both efficiency improvements and any needed departmental restructurings. You can communicate these general targets in group meetings, while revealing individual impacts on employees in one-on-one meetings. Do not let individual employees be personally surprised by your announcements at general staff meetings—always reveal individual impacts prior to general meetings, so these people will be prepared.Create and implement a personnel review system. If you intend to let people go, early in your term is the time to do it. However, there is great risk of letting strong performers go if you do not have adequate information about them, so install a personnel review system as soon as possible and use it to determine who stays and who leaves.

The general guidelines noted here have a heavy emphasis on communication, because employees will be understandably nervous when the boss changes and you can do a great deal to assuage those feelings. Also, setting up personal contacts throughout the organization is a great way to firmly insert yourself into the organization in short order, and doing so makes it much less likely that you will be rejected by the organization at large.