Responsibility Apoorva Misra CFO and Director Sales & Marketing | Fomento Resources Group + Agenda Evolving Business Environment Multi faceted role of a CFO Activities Preformed by CFO Live Example:- Capital Budgeting; Treasury Management
31-05-2014 Apoorva Misra 2 + Evolving Business Environment 31-05-2014 Apoorva Misra 3 + Evolving Business Scenario Economic challenges across the globe have reshaped the Global business environment, and as a result, the CFOs role Uncertainty prevails due to: Lack of political unanimity Technology shift High level of: Nationalism Protectionism Government regulations
31-05-2014 Apoorva Misra 4 + Multi Faceted Role of A CFO 31-05-2014 Apoorva Misra 5 + Role of CFO: Score Keeper CFO has the ultimate responsibility of timely and accurate financial reporting for internal and external users, the best CFO are able to master this role. Estimates that are constantly changing drive the information used to produce financial statements. These changing conditions mandate that the CFO be an astute evaluator of data. 31-05-2014 Apoorva Misra 6 + Role of CFO: Accounting Technician In the current Globalized World the CFO needs to understand the Generally Acceptable Accounting Principles of its host country as well as across the globe. The harmonization of international accounting standards toward International Accounting Standard is helpful in reducing the variability in the accounting rules around the world 31-05-2014 Apoorva Misra 7 + Role of CFO: System Administrator & Technology Innovator The increased use of automation and ERP systems in the present day environment makes it essential for the CFOs to understand the system construct. Technology comes at a high cost but the implication of not having the right technology is dire. CFOs do need to play a large role in technology selection and innovation. 31-05-2014 Apoorva Misra 8 + Role of CFO: Tax Planner Tax planning is viewed as a means to increase shareholders value. Firms need to consider short term and long term impact of the tax planning activities specially in the light of General Anti Avoidance Rule GAAR and Controlled Foreign Corporation CFC rules.
31-05-2014 Apoorva Misra 9 + Role of CFO: Communicator CFO that succeed are great communicators. CFOs needs to be able to interact with external agencies such as tax authorities, other government authorities, shareholders, bankers, lawyers etc. These external agencies have varied outlook and objectives. CFOs needs to be able to interact within the organization and should be able to communicate his points clearly and precisely.
31-05-2014 Apoorva Misra 10 + Role of CFO: Risk Manager CFOs are proactive risk managers. Financial management is managing risk. Risk comes from several sources, such as safety, contract provisions, relationships with employees, customers, subcontractors, vendors, bankers. The first steps in risk management are identifying and analyzing sources of risk so that they are manageable. The various types of risk that a modern day firm faces are Strategic Risk Operational Risk Legal and Compliance Risk Financial Risk Risk of Business as usual
31-05-2014 Apoorva Misra 11 + Role of CFO: Strategic Risk CFO has to have a detailed knowledge of the business, equivalent to that of the CEO, to combine the financial and the business aspects and guide the organization. The Strategy Execution The CFO can lead It is not sufficient to just flag a problem. It is needed to influence the change and this would require soft skills as well as hard work Each element of strategy should have dashboard to monitor Do not ignore the small thing
31-05-2014 Apoorva Misra 12 + Role of CFO: Operational Risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events Do not ignore even the smallest breach of trust; it can take bigger shape in the future. CFO must have thorough understanding of business and its drivers CFO has to understand and track internal and external environment at all times CFO must be a master of details. Both devils and innovation lie there.
31-05-2014 Apoorva Misra 13 + Role of CFO: Risk Manager Legal and Compliance Risk Zero tolerance in the light of changing nature of regulations like FCPA, anti-bribery, GAAR etc. Legal risk always comes out in the long term. There is a prevalent environment of Nationalism and Protectionism. It is characterized by increased level of unemployment in most countries The CFO needs to develop an awareness and knowledge of the local laws and regulations Boundaries are shrinking: Global workforce is to be integrated into the organization
31-05-2014 Apoorva Misra 14 + Role of CFO: Risk Manager Financial Risk Risk of Leveraging. Does adding debt actually reduce the Cost of Capital? Treasury Policy: Objective should align with Business Risk. Government Policy and Sociopolitical Risk 31-05-2014 Apoorva Misra 15 + Role of CFO: Risk Manager - Business as usual Risk The only thing certain in the world of business is uncertainty and change. CFO should focus on Business Continuity Planning. Business Continuity Planning is all about anticipating, preventing and responding to incidents which could affect critical business functions in planned manner. How to continue operating if head office is damaged by disaster? How to maintain production if one or more plants are out of operation? What happens if sales and marketing systems are shut down? Where to source raw materials if the existing supply is interrupted? What is the action plan if senior managers are suddenly unable to work? 31-05-2014 Apoorva Misra 16 + Activities Performed by CFO 31-05-2014 Apoorva Misra 17 + Responsibilities of a CFO Capital Budgeting Capital Budgeting is one of the major responsibility of a CFO. CFOs should understand the underlying business landscape to perform a good capital budgeting exercise. CFOs should also have a good grasp on latest trends and changes taking place in the industry. Knowledge of these changes will increase the reliability of the capital budgeting exercise. 31-05-2014 Apoorva Misra 18 + Responsibilities of a CFO Regulatory Compliances Requirements for regulator compliances increase with the complexity of the business as well as with geographical diversification. CFOs shall be aware of the requirements and should keep a track of the regulator compliances made by the finance departments as well as other departments. CFO shall, on a regular basis, get an external agency to audit the regulatory compliances 31-05-2014 Apoorva Misra 19 + Responsibilities of a CFO Treasury Management Modern day organizations need a very robust and dynamic treasury policy. The primary objective of treasury policy is to reduce the business risk. The treasury investments shall ideally be negatively correlated with the business risk. Indian firms do carry large cash balances in their balance sheet, making cash management policy very important. Indian firms also carry high amount of currency, commodity and interest rate risk. Treasury policy shall focus of reducing such risk. 31-05-2014 Apoorva Misra 20 + Responsibilities of a CFO Risk Management, non financial risks Set-up an independent internal audit system. The internal audit system should be directly report to the CEO. Focus on regulatory and compliance risk and explore ways to mitigate them. Focus of Socio-political risk and explore ways to mitigate them. 31-05-2014 Apoorva Misra 21 + Live Examples 31-05-2014 Apoorva Misra 22 + CASE STUDY: Capital Budgeting Basic Information We are evaluating an investment into an iron ore exploration company in Brazil. The Brazilian Company is concessioner of exploration permit and has very basic data on iron ore reserve and the quality of the reserve. The Indian Company will invest money in exploration of the iron ore deposit. How do you think one should proceed with the evaluation of the opportunity? 31-05-2014 Apoorva Misra 23 + CASE STUDY: Cash Management for Private Company Commodity companies globally are in middle of a commodity super-cycle, wherein the commodity companies are generating large amounts of cash. What should these commodity companies do with the large amounts of free cash being generated? What should these companies with large free cash flow do with respect to their M&A activities, Dividend Policy CSR activities etc.? 31-05-2014 Apoorva Misra 24 + CASE STUDY: Cash Management for Private Company A private limited company has a surplus cash balance (over and above the cash required for running the business) of USD 300 Million [Rs 10,000 Million]. Let us discuss cash management policy. 31-05-2014 Apoorva Misra 25