The CFO Guidebook. 3rd Edition. Steven M. Bragg

Transcription

1 The CFO Guidebook 3rd Edition Steven M. Bragg

2 Chapter 1 The CFO Position...1 Learning Objectives...1 Introduction...1 The CFO Job Description...1 The Controller Job Description...2 CFO and Controller Differences...4 The CFO Organizational Structure...4 Relations with the Chief Executive Officer...6 Relations with the Board of Directors...7 Relations with the Audit Committee and Auditors...7 Summary...8 Review Questions...9 Review Answers...10 Chapter 2 Strategic Planning...11 Learning Objectives...11 Introduction...11 Strategy Overview...11 Types of Strategies...12 Risk Analysis...13 A Tight Strategic Focus...14 Pacing...14 Acquisition Strategy...15 Outsourcing...16 The Consideration of Cash in Strategy...17 Summary...17 Review Questions...19 Review Answers...20 Chapter 3 Risk Management...21 Learning Objectives...21 Introduction...21 Risk Management...21 The Role of the CFO...22 Risk Identification...23 Risk Quantification Issues...23 Risk Ranking...24 The Risk Profile...26 Risk Planning...27 Insurance...27 Data Security Risk...30 Supply Chain Risk...30 Political Risk...31 Foreign Exchange Risk Overview...32 Foreign Exchange Risk Management...33 Take No Action...33 Avoid Risk...34 Shift Risk...34 Time Compression...35

3 Payment Leading and Lagging...35 Build Reserves...35 Maintain Local Reserves...35 Hedging...36 Summary...36 Types of Foreign Exchange Hedges...36 Loan Denominated in a Foreign Currency...37 The Forward Contract...37 The Futures Contract...38 The Currency Option...38 The Cylinder Option...40 Swaps...40 Netting...40 Interest Risk Overview...41 Interest Rate Risk Management...42 Take No Action...42 Avoid Risk...42 Asset and Liability Matching...42 Hedging...42 Types of Interest Rate Hedges...43 The Forward Rate Agreement...43 The Futures Contract...44 The Interest Rate Swap...46 Interest Rate Options...47 Interest Rate Swaptions...50 Risk Management Themes...50 Review Questions...52 Review Answers...54 Chapter 4 The Control Environment...57 Learning Objectives...57 Introduction...57 The Genesis of Accounting Controls...57 The Proper Balance of Control Systems...58 The Nature of Risk...59 Control Principles...60 The Failings of Internal Controls...61 Preventive and Detective Controls...62 Manual and Automated Controls...62 Constructing a System of Controls...62 Special Case Acquisitions...63 Special Case Employee Turnover...64 Special Case Rapid Growth...64 Special Case Audit Committee Oversight...65 Control System Documentation...65 Summary...66 Review Questions...67 Review Answers...68 Chapter 5 Performance Measurement...69 Learning Objectives...69 Introduction...69 ii

4 Cash Conversion Cycle...69 Days Sales in Accounts Receivable...70 Days Sales in Inventory...70 Days Payables Outstanding...71 Free Cash Flow...72 Working Capital Productivity...72 Cash Reinvestment Measurements...73 Cash Reinvestment Ratio...73 Funds-Flow Adequacy Ratio...74 Contribution Margin Ratio...75 Core Earnings Ratio...75 Quality of Earnings Ratio...76 Breakeven Point...77 Margin of Safety...78 Return on Equity...78 Return on Assets...80 Return on Assets...81 Return on Operating Assets...82 Affordable Growth Rate...83 Summary...85 Review Questions...86 Review Answers...87 Chapter 6 Mergers and Acquisitions...89 Learning Objectives...89 Introduction...89 Acquisition Strategies...89 The Failings of Acquisition Strategy...91 Acquisition Due Diligence...91 Indicators of a Strong Acquisition Candidate...95 Acquisition Valuation...96 Forms of Acquisition Payment The Stock-for-Stock Exchange The Debt Payment The Cash Payment Summary The Acquisition Legal Structure Tax Issues Issues with Stock Purchases Gain Recognition Avoidance Rules Type A Acquisition Type B Acquisition Type C Acquisition Triangular Merger Reverse Triangular Merger Asset Purchase Summary Acquisition Integration General Integration Concepts Function-Specific Integration Issues Integration for the Serial Acquirer Summary iii

5 Review Questions Review Answers Chapter 7 Budgeting and Forecasting Learning Objectives Introduction The Advantages of Budgeting The Disadvantages of Budgeting Capital Budgeting Problems The Command and Control System Behavioral Impacts Bureaucratic Support Information Sharing The System of Budgets Operating Decisions Impacting the System of Budgets The Reasons for Budget Iterations Alternatives to the Budget Forecasting without a Budget Capital Budgeting Goal Setting without a Budget Strategy without a Budget Management Guidelines The Role of Senior Management Compensation without a Budget Behavioral Norms Profit Knowledge Information Exchange Accounting Reports The Rolling Forecast The Rolling Forecast Format Summary Review Questions Review Answers Chapter 8 Product Pricing Learning Objectives Introduction Psychological Pricing Cost plus Pricing Dynamic Pricing Freemium Pricing High-Low Pricing Premium Pricing Time and Materials Pricing Value Based Pricing Other Pricing Strategies Internet Pricing Price Elasticity of Demand Cross Price Elasticity of Demand Non-Price Determinants of Demand Summary Review Questions Review Answers iv

6 Chapter 9 Capital Budgeting Learning Objectives Introduction CFO Responsibilities Overview of Capital Budgeting Bottleneck Analysis Net Present Value Analysis The Payback Method The Outsourcing Decision The Lease versus Buy Decision The Post Installation Review Summary Review Questions Review Answers Chapter 10 Cash Management Learning Objectives Introduction The Cash Forecast The Short-Term Cash Forecast The Medium-Term Cash Forecast The Long-Term Cash Forecast The Use of Averages The Use of Clearing Dates in a Forecast Cash Forecast Reconciliation The Need for Cash Concentration Cash Sweeping The Zero Balance Account Multiple Sweep Arrangements Manual Sweeping Sweeping Rules Sweep Problems Sweep Costs Summary Notional Pooling Notional Pooling Problems Notional Pooling Costs Summary Multi-Tiered Banking Cash Concentration Best Practices Cash Concentration Alternatives Summary Review Questions Review Answers Chapter 11 Investment Management Learning Objectives Introduction Investment Guidelines Investment Strategy Repurchase Agreements Time Deposits v

7 Certificates of Deposit Bankers Acceptances Commercial Paper Money Market Funds U.S. Government Debt Instruments State and Local Government Debt Bonds The Primary and Secondary Markets The Discounted Investment Formula The Effective Interest Rate Summary Review Questions Review Answers Chapter 12 Fund Raising with Debt Learning Objectives Introduction Overview of Debt Funding The Line of Credit The Borrowing Base Invoice Discounting Factoring Inventory Financing Purchase Order Financing Leases The Long-Term Loan Agency Financing Other Lending Alternatives Improving Upon Prepayment Terms Floating-Rate Notes to Individuals Debt Covenants Lender Relations Debt Risk Issues Deleveraging Summary Review Questions Review Answers Chapter 13 Fund Raising with Equity Learning Objectives Introduction Overview of Equity Funding Restricted Stock Unrestricted Stock The Accredited Investor Regulation D Stock Sales Warrants Regulation A Stock Sales Angel Investors and Venture Capital Debt for Equity Swaps Crowdfunding Summary vi

8 Review Questions Review Answers Chapter 14 Credit Rating Agencies Learning Objectives Introduction The Credit Rating Environment The Rating Process Summary Review Questions Review Answers Chapter 15 Going Public and Going Private Learning Objectives Introduction Reasons for and Against Going Public The Initial Public Offering The Reverse Merger Concept Advantages and Disadvantages of the Reverse Merger The Price of a Shell Shell Due Diligence Trading Volume Other Reverse Merger Issues Rule The Reverse-Forward Split Going Private Summary Review Questions Review Answers Chapter 16 Stock Exchanges Learning Objectives Introduction Stock Exchange Overview The New York Stock Exchange The NYSE MKT The NASDAQ The NASDAQ Global Select Market The NASDAQ Global Market The NASDAQ Capital Market The Toronto Stock Exchange Delisting from an Exchange The Over the Counter Bulletin Board The Pink Sheets Summary Review Questions Review Answers Chapter 17 Investor Relations Learning Objectives Introduction Investor Relations Overview vii

9 The Earnings Call Guidance Earnings Smoothing The Road Show The Fund Raising Road Show The Non-Deal Road Show The Road Show Presentation Regulation FD Short Sellers Summary Review Questions Review Answers Chapter 18 Public Company Financial Reporting Learning Objectives Introduction Interim Reporting The Integral View The Discrete View Comparison of the Integral and Discrete Views Interim Reporting Issues Segment Reporting Primary Segment Reporting Issues The Segment Report Earnings per Share Basic Earnings per Share Diluted Earnings per Share Presentation of Earnings per Share The Public Company Closing Process The Form 10-Q The Form 10-K The Form 8-K Summary Review Questions Review Answers Chapter 19 Share Management Learning Objectives Introduction Float Management Activities to Increase the Float Activities to Delay Stock Sales The Direct Stock Purchase Plan The Employee Stock Purchase Plan Dividend Reinvestment Plans Stock Splits Dividend Payments The Stock Buyback Option The Stock Repurchase Safe Harbor Provision Odd Lot Shareholders Summary Review Questions Review Answers viii

10 Chapter 20 Information Technology Learning Objectives Introduction Types of Information Technology Technology Ranking Methods Technology Usage Based on Strategy Cloud Computing GRC Software Enterprise Resource Planning Systems Sales Force Automation Software Summary Review Questions Review Answers Glossary Index ix