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A short course of lectures
«Executive finance and strategy»





StrategicThe need for a consistent and robust processIAS 7 Statement of cash flowsInvesting activitiesForeign currency issuesGoalRatios - presenting one figure relative to anotherThe acquisition strategy - investing cash, or better still little or no cash but rather issuing shares, to acquire businesses which may be a bargain or which you can turn aroundMethods of budgetingFinancial position - the balance sheetRecognition of liabilitiesInterests in unconsolidated structured entitiesOvertradingContent, order and logic of this chapterFinancialTheir place in financial statementsInternal controls - accounting systems and procedures - prevention of error and fraudHedging strategiesGLOSSARYTime baseSunk costsA higher margin (selling price)/lower operating cost strategyThe structure of a statement of cash flowAre your strategies co-coordinated and aligned?Modelling operational structure, particularly costsModelling the futureLinks between management accounting and financial strategyExample A - XYZ picNPV or IRR - which should be used?Linked parametersAlternative balance sheet layoutsWhat is meant by 'rate'?Gearing or leverage ratiosLeasesThe need for the most likely caseMission statementsWhy have detailed internal management reports?Expenses/costs/purchases/overheadsLinks between cash and financial strategyWhat is meant by 'sensitive' - what levels of sensitivity can be tolerated?PrudenceMore detailed analysis is requiredFuture developmentsAssetsDividend cover(e) ModellingLower capital employed strategy - 'cheap is good!'Why the emphasis on 'useful in making economic decisions'?Higher sales/volume strategyLogic and orderComparisons with past or budgeted performance or positionOrder of the chaptersCost of capitalGross profitMotiveExample BCapital cash flowsContent, order and logic of this chapterNon-discounted methods - paybackContent, order and logic of this chapterLong-term views are encouragedExample CWhy does the management report exist?What is business strategy?Interests in joint arrangements and associatesGoing concern - a fundamental concept, also termed an underlying assumptionMaking a good return is the objective, but what exactly is ROI?Content, order and logic of this chapterContent, order and logic of this chapterDetermining controlLinks between the book's chapters and strategiesRevision and learning pointers(b) Researching Need for a defined modelGoing concern - a fundamental concept, also termed an underlying assumptionVision'Reading' the balance sheetInvest and sell on a promise strategy - beauty is in the eye of the beholder (or the deceived or delusional!)Common errors in appraisal cash flowInvestment appraisal. Investment strategyOther UK company law that has a bearing on financial strategiesCost of salesContent, order and logic of this chapterWeaknesses of traditional budgeting and how ZBB differsBudget modelsHow you might forecastFinancing activitiesA checklist to assist with making clear, actionable reportsExternal auditAnalytical reviewLinks between financial statements and strategyForecasting methodsMaterialityTargetOrder and logicRecord keeping/bookkeepingPrice to earnings ratio (P/E ratio)Cautionary words on modellingDividends per share (DPS)Compounding and discountingInsolvencyBudget cultureContent, order and logic of this chapter(d) Leading indicatorsIn favour of purchasingOrder and logicIncome statements - P&L accountsOrder and logicProblems in implementing a ZBB systemAlignWhat is strategy? What does financial strategy mean?What do GAAP, FASB, IASB and IFRS mean?Lower margin/higher sales volume strategyIncome/sales/revenueObjective(s)CriteriaA simple balance sheet and a layout used for management purposesCorporate governanceBudgetingStructural or pure financial strategiesLinks between published financial statements and financial strategyAn arithmetical proof of a high-return strategyDepreciation costs are includedSpecial purpose vehicles or entities -off-balance sheet activitiesLeases where the lessee consumes or uses up part of the underlying asset (Type A leases)Creative accounting/aggressive accountingBackground to accounting standardsThe many uses of appraisal modelsRandom eventsHow might materiality impinge on strategy?Sale and leasebackLessee accounting - basic approachEBITDAAccounting 'rules'. How accounting theory and rules affect the strategic numbersWorking capital ratios(c) Extrapolation methodsContent, order and logic of this chapterIncome statement - the P&L accountEquityRevision and learning pointersRecognition of incomeBedrock conceptsMeasurement of the elements of financial statementsSensitivity analysisFinancial strategy. Why be in business?Worked exampleAsset lightLiabilitiesAccruals or matching conceptContent, order and logic of this chapterConsidering relationships - analytical reviewInternal controlsCash: the vital elementGoing concernA food producer and an engineering companyThe time value of money and required ratesReview question - interpreting P&L account profilesCash flow modelsObjective of the standardOrder and logicThe capital investment strategy - invest for a longer-term returnPurpose of financial statementsRecognition and measurementPrudence and strategiesMissionWhat does budgeting mean?EquityAcquisition 'run-out' strategyThe probability of future economic benefitPrincipal accounting concepts -going concern and accrualsWhere cash appears in financial statementsRevision and learning pointersHow does making a return on investment link with strategy?AssetsCompany law and directors' responsibilitiesAccruals concept - a fundamental conceptCommon types of modelsZero-based budgetingContent, order and logic of this chapterBalance sheets - statements of financial positionStructure of the chaptersIncome statements and other comprehensive incomeThe difference between 'forecast' and 'budget'Where do budget objectives come from?Cash-flow-focused strategiesThe extractive strategyException reportingShare valuesRevision and learning pointersRevision and learning pointersInterpreting financial statementsLinks between interpretation and financial strategyThe strategic reportOrder and logicTacticNo need for provisions or contingenciesRecognition of expensesInsolvency - going concern - overtradingBasic definitionsEarnings per share (EPS)Understandability (this word does not pass spell checkers!) and the existence of accounting phenomenaCash flows for trading - working capitalWhat underpins financial statements?What does the BT pic cash flow statement tell us?Order and logicLease versus buyTrading strategy - acquire and dispose of companiesCosting models - definitionsLogic and orderBookkeeping examplesInitial measurementFurther Companies Act 2006 sections of which executives should be awareGroup structuresCash flow modelsExternal ratiosAphorismsStatement of cash flowsInternal rate of return (IRR) or DCF yieldThe simple truths from the tablesSo how does all of this affect financial strategy?Revision and learning pointersSales and costing definitions and modelsInterest and loan repayment are includedValuesThe mundane money-making strategy -cash generation for everWhat do successful companies say?In favour of leasingComparisons with external benchmarksRecognition of assetsFinally, does ZBB work?How to budgetManagement reports - to assist with understanding strategy and its deliverySubstance over formMore practiceTerminology used in this bookCash flow reports - illustrationUses of analytical reviewsOrder and logicCommon appraisal measuresNet present value (NPV) or present worth'One at a time' approachNon-discounted methods - accounting rate of return, ROCE or ROILeasing and off-balance sheet financeLife-cycle costing/whole-life costing strategyAn incremental approachHow does management accounting support strategy?Order and logicAccounting systemsValuing propertiesManagement accounting. Internal reports and business modelsThe attitudes and behaviour characteristic of a particular social groupWhy be in business?Gearing or leverage and the 'magic' of gearingBT plc Group balance sheetYou cannot do what you likeWhat do balance sheets reveal about a business?Current ratioHow the concepts impact on the figures (and restrain some behaviour)Asset strippingThe need for investment appraisalFurther considerationsLinks between investment and financial strategy(f) Guaranteeing the figuresThe academic 'accounting framework' definitionsTime value of moneyCosting models - costing to calculate full costsWhy have accounting records? Why bother with bookkeeping?Published statements of cash flowStatement of financial position -the balance sheetThe wide scope of management accountingCompletenessThe statement of cash flows - the three views of business cashRevision and learning pointersArithmetic of appraisal - discounting cash flowsThe ideas, customs, and social behaviour of a particular people or societyBudget reportsBasic financial reports and conceptsExternal and internal audit - prevention of error and fraudRevenueEarnings yield and dividend yieldDevelopments in financial reportingCorporate governance covers much more than ethicsLiquidity ratio/quick ratio/acid test ratioRevision and learning pointersWhy budget?Content, order and logic of this chapterSources of fundsThe importance of cash records and reportsWhat is the 'magic' of gearing?Order and logicOrder and logicRisk identification and managementContent, order and logic of this chapterWhat is the objective of financial strategy?Definitions of 'financial', 'strategy' and 'strategic'Assessing control - investor assessmentHow much analysis should be carried out?Examples of published income statementsOther reasons for internal controlThe dual approachStrategyAnalytics - can there be too much analysis?Appropriate design of reports is importantMethods of forecastingTechniques for interpreting financial statementsOperating activitiesInterests in subsidiariesCharts and graphs(a) Incremental budgetingHigh gearing strategyFurther strategy-related definitionsComparabilityWhat extant accounting standards requireSubstance over formHow you might use this bookFuture reportingCash flow forecastsThere is no such thing as 'just a figure'CommentaryMarket to book ratioWhat successful companies sayIFRS 12 Disclosure of Interests in Other EntitiesAudit functionProject appraisal - an integrated approachRevision and learning pointersWhy we have to disclose ratiosThe pyramid of ratiosLinks with strategyUK full financial statementsRatio analysisCosting models - costing for planningUK company law requirementsEnhancing qualitative characteristicsStrategic drivers of ROILiabilitiesLeases where the lessee pays for the use of the underlying asset (Type B leases)What (discount) rate should be used?GAAP, which may cause issues with strategiesAutomating the interpretation - intelligent interpretationNotes to financial statementsReporting overheads - overhead analysisMateriality and relative amountsPublished or statutory accountsKPIs, dashboards and detailed analysisInterpreting financial statementsBudget stagesThe base modelExamples of company cash flows and how they relate to strategiesFinancial position - the balance sheetCompany law requirements re storage and access to recordsThe objective or purpose of financial statements
 
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