CORPORATE FINANCIAL MANAGEMENT
1. INTRODUCTION
The difference between an accountant and an CFO
Accountant:
Reports the past, history
He uses accounting rules: the value of a building could be 0 because of
depreciation so this value isn’t the same as the real, market value
He needs to be 100% precise
Repetitive job
CFO:
He will look at the future, forecast
He will make plans for the company and decide together with the CEO
what the company should do, which way they need to go
He has to estimate, he can’t be 100% precise, in the future, there is
always some uncertainty – he needs to be as precise as necessary
New and explorative
Needs to make decisions for the future
What’s the best decision? To know that, he needs to understand business
model and reality
The role of a CFO in the firm
He needs to make investment and finance decisions
Investment decisions: in what are we going to invest?
Finance decisions: how are we going to pay these investments?
Finance exist of equity and debt
o Equity: the capital of the shareholders
o Debt: borrowing money from the bank, lenders, …
First you have to if you make profit,
invest money in this you can divide this
and then you can profit between the debtors
make profit and the shareholders
from it
,A CFO is the heart of the business
o In companies, it could be that no one knows the accountant, but
everyone should know the CFO because he should be really involved
in the company and be involved with a lot of decisions
What should a CFO do?
Business decisions & financial implications
Marketing: pricing & product strategies
Production and operating decisions
Maximalisation of entreprise value by
Finance decisions optimal usage of liabilities (=passiva)
Investment decisions optimal usage of assets (=active)
o When there is no optimal usage of the assets / liabilities =
lazy balance sheet = excess capital
For example: having too much money on you’re bank
account, especially in a quite stable industry bcs that is
just money laying around (in a new, growing industry
you have more unexpected expenses so here you can
have more money on your bank account)
you can better use this money to pay back the
shareholders or the debtors
when you pay back the shareholders the amount on
the back account decreases + the post ‘retained losses
and profits’ decreases with the same amount
this is not a very aggressive move to make their
balance sheet less lazy
more aggressive would be that you as a company
would borrow money and distributing this money to the
shareholders
this would mean that the loans and borrowings post
increases with the amount and the retained losses and
profits decreases with that amount
A CFO doesn’t look at the accounting values, he only looks at the market values
He works with a “different” balance sheet than the accountant
Current Assets Equity
Aiding in current cashflow generation
Growth Assets Debt
Source for future cashflow generation
,Investing – Assets
What’s important? – Example of a clothing store
Today’s trend is that more and more selling happens online and clothing stores
are suffering from that. What should have happened? Clothing stores should
have noticed this trend earlier so they could have used the money from their
actual stores (who were still popular and profitable at that time) to invest in an
ecommerce business. Now it’s too late to switch because the ecommerce is a big
investment and they don’t have so much money because the actual stores don’t
make a lot of money anymore. They should have shifted money for a cash cow to
create another cash cow
Financing – Equity and Debt
DEBT EQUITY
Claims on cash flow Fixed, interest rate % Residual
(=overgebleven, what’s
left)
Managerial decisions None / low (low in case High (depending on how
they connect conditions much shares you have
to the loan)
The length = tenor Fixed Perpetual (=blijvend)
Tax treatment Deductible (=aftrekbaar) Non-deductible
What’s the purpose of a company?
Maximize firm value
Maximize shareholder value indicator for this = stock price
Nowadays: also environment, social government, …
, Shareholders? Some terms.
Review manager’s performance
o If the results aren’t good: the shareholders can fire the
management
Activist shareholders
o Shareholders who want to have a say in the management
o Example we have seen: Dan Loeb with Netsle, he invested a lot of
money and put pressure on the management to split the company
into three divisions
o Why does this happen somethings? Because the company can focus
back on only the core business and bcs of the focus the three
divisions apart are worth more than the company as a whole
Hostile takeover
o This means a company takes over another company without
discussions with the management of the other company
Share buyback
o This means a company buys his own shares back for the
marketplace
o Why? To reduce the number of shares available, because
management considers them undervalued and wants to increase
both the demand for the shares and thereby the price
Debtors?
Debtors are those who lend money out to the company
Normally, there is an interest rate
The company needs to pay back the amount + interest
Right now the interest is 0 or less % which means a company will get
more money that it borrowed in the first place
Debtors have no say in the management
But they can add conditions / covenants to the loan as a protection
Financial markets?
Misleading information
o You are not allowed to give misleading information as a
management – example of Elon Musk - example of inside
information – example of the excuse from the trade dispute
between China and the US
1. INTRODUCTION
The difference between an accountant and an CFO
Accountant:
Reports the past, history
He uses accounting rules: the value of a building could be 0 because of
depreciation so this value isn’t the same as the real, market value
He needs to be 100% precise
Repetitive job
CFO:
He will look at the future, forecast
He will make plans for the company and decide together with the CEO
what the company should do, which way they need to go
He has to estimate, he can’t be 100% precise, in the future, there is
always some uncertainty – he needs to be as precise as necessary
New and explorative
Needs to make decisions for the future
What’s the best decision? To know that, he needs to understand business
model and reality
The role of a CFO in the firm
He needs to make investment and finance decisions
Investment decisions: in what are we going to invest?
Finance decisions: how are we going to pay these investments?
Finance exist of equity and debt
o Equity: the capital of the shareholders
o Debt: borrowing money from the bank, lenders, …
First you have to if you make profit,
invest money in this you can divide this
and then you can profit between the debtors
make profit and the shareholders
from it
,A CFO is the heart of the business
o In companies, it could be that no one knows the accountant, but
everyone should know the CFO because he should be really involved
in the company and be involved with a lot of decisions
What should a CFO do?
Business decisions & financial implications
Marketing: pricing & product strategies
Production and operating decisions
Maximalisation of entreprise value by
Finance decisions optimal usage of liabilities (=passiva)
Investment decisions optimal usage of assets (=active)
o When there is no optimal usage of the assets / liabilities =
lazy balance sheet = excess capital
For example: having too much money on you’re bank
account, especially in a quite stable industry bcs that is
just money laying around (in a new, growing industry
you have more unexpected expenses so here you can
have more money on your bank account)
you can better use this money to pay back the
shareholders or the debtors
when you pay back the shareholders the amount on
the back account decreases + the post ‘retained losses
and profits’ decreases with the same amount
this is not a very aggressive move to make their
balance sheet less lazy
more aggressive would be that you as a company
would borrow money and distributing this money to the
shareholders
this would mean that the loans and borrowings post
increases with the amount and the retained losses and
profits decreases with that amount
A CFO doesn’t look at the accounting values, he only looks at the market values
He works with a “different” balance sheet than the accountant
Current Assets Equity
Aiding in current cashflow generation
Growth Assets Debt
Source for future cashflow generation
,Investing – Assets
What’s important? – Example of a clothing store
Today’s trend is that more and more selling happens online and clothing stores
are suffering from that. What should have happened? Clothing stores should
have noticed this trend earlier so they could have used the money from their
actual stores (who were still popular and profitable at that time) to invest in an
ecommerce business. Now it’s too late to switch because the ecommerce is a big
investment and they don’t have so much money because the actual stores don’t
make a lot of money anymore. They should have shifted money for a cash cow to
create another cash cow
Financing – Equity and Debt
DEBT EQUITY
Claims on cash flow Fixed, interest rate % Residual
(=overgebleven, what’s
left)
Managerial decisions None / low (low in case High (depending on how
they connect conditions much shares you have
to the loan)
The length = tenor Fixed Perpetual (=blijvend)
Tax treatment Deductible (=aftrekbaar) Non-deductible
What’s the purpose of a company?
Maximize firm value
Maximize shareholder value indicator for this = stock price
Nowadays: also environment, social government, …
, Shareholders? Some terms.
Review manager’s performance
o If the results aren’t good: the shareholders can fire the
management
Activist shareholders
o Shareholders who want to have a say in the management
o Example we have seen: Dan Loeb with Netsle, he invested a lot of
money and put pressure on the management to split the company
into three divisions
o Why does this happen somethings? Because the company can focus
back on only the core business and bcs of the focus the three
divisions apart are worth more than the company as a whole
Hostile takeover
o This means a company takes over another company without
discussions with the management of the other company
Share buyback
o This means a company buys his own shares back for the
marketplace
o Why? To reduce the number of shares available, because
management considers them undervalued and wants to increase
both the demand for the shares and thereby the price
Debtors?
Debtors are those who lend money out to the company
Normally, there is an interest rate
The company needs to pay back the amount + interest
Right now the interest is 0 or less % which means a company will get
more money that it borrowed in the first place
Debtors have no say in the management
But they can add conditions / covenants to the loan as a protection
Financial markets?
Misleading information
o You are not allowed to give misleading information as a
management – example of Elon Musk - example of inside
information – example of the excuse from the trade dispute
between China and the US
