Issues in Financial Management
Hot Topics in Financial Management
Controllers, corporate treasurers, CFOs and other financial managers should be familiar with these issues in financial management. Many are old concepts, but they often merit revisiting, especially for those new to the field.
Barter exchanges are a means for cash-poor companies to trade products or services, sometimes at significant implicit discounts from their normal cash prices, thereby supporting their continued operations in difficult times.
Benchmarking is the process of finding relevant points of comparison for financial and other quantitative analyses. To a large extent, benchmarking is as much an art as a science. Do it incorrectly, and you can promote flawed decision making that is costly to the organization. Moreover, clever corporate politicians realize that they can push decisions in their desired direction through a crafty choice of benchmarks in their analyses.
Budge exercise involves cutting expenses due to poor financial performance. Some companies have frequent budget exercises, which creates ongoing stress for the people in controller positions, or those who are affected by cuts.
Capital budgets set expenditure levels and investments of long-lived assets that are expected to generate financial returns over an extended number of years.
Data security, the protection of company and its consumers' information, is a major concern in the financial services industry, with huge potential liabilities. Accordingly, data security policies involve not only information technology staff, but also risk management and compliance personnel, as well as controllers. Furthermore, financial management professionals in other industries need to be familiar with the issues involved.
Free credits are essentially free money to organizations to finance their daily operations, and have long been the financial lifeblood of securities.
Invoice discounting allows companies to receive payments on their accounts receivable in a timely manner to avoid cash flow shortages. In essence, a company can use their unpaid invoices that have 30 to 90 day payment due dates as collateral for a short-term loan. The buyer of the loan can then receive the full-payment of the invoice from the company or person that was billed.
Some cash-rich companies are using the concept of invoice discounting in reverse as a means to extend needed financing to suppliers that cannot obtain bank credit at reasonable rates, or at all.
The internal rate of return (IRR) is used as part of capital budgeting to evaluate potential profitability of an investment. The calculation focuses on internal factors, excluding outside factors such as inflation or other financial risks.
Junk bond finance was popularized in the 1980s as an alternative financing method for companies that were too new or insufficiently profitable to tap the equity markets.
The Lehman Wave
The Lehman Wave describes how small fluctuations in demand or production at one end of a long supply chain can become greatly magnified by the time they reach the opposite end of the chain. This set of insights has huge implications for financial managers in a variety of industries.
Matrix reporting is a situation in which employees have more than one manager or supervisor they report to. It is a common arrangement for members of financial organizations that want to share their employees' talents across departments.
Net present value (NPV) is a fundamental tool of financial analysis to determine the potential value of an asset the company might be interested in investing in. Many variables can impact the value of an asset, but NPV uses discounted cash flow in its analysis, which considers risk and time, and thereby offers a more precise result. It is applied in many different scenarios from investment analysis to corporate budgeting to project analysis.
Producer vs. Support
This involves considerations in choosing and moving between producer and support job categories.
Reputation insurance limits the possible financial damage to a company from adverse publicity or other situation that hurts the business' brand.
Royalty financing is when investors give money in exchange for a percentage of future revenue, usually 2% to 6%, over a period of time. It can be a device for a young and growing company to keep debt servicing manageable, by turning it from a fixed to a variable expense.
The Washington Monument Ploy refers to a government trick by which it cuts the most valuable expenditures, instead of the least, when faced with budget cutbacks. It's the equivalent of a family cutting out the important food budget instead of the unnecessary entertainment budget when money gets tight. It is is trick employed by some managers seeking to avoid reductions to their budgets, one that controllers and CFOs need to wary of.