During the past decade, the CFO role has expanded dramatically in its breadth, complexity, and criticality. Filled with proven strategies, best practices, and keen insights, The Essential CFO describes how today's CFOs are responding to their expanded roles within both public and private companies. With straightforward and pragmatic guidance, author Bruce Nolop shows how CFOs are partnering with CEOs to deliver shareholder value by articulating a strategic plan, determining capital allocations, managing the capital structure, driving financial performance, and implementing strategic transactions.
- Covers how CFOs are establishing robust accounting and risk management processes and effectively communicating with both external and internal constituencies
- Looks at the role of the CFO in transforming financial organizations to drive effectiveness and efficiencies
- Examines how CFOs can develop talent with the experience, expertise, and leadership skills to meet the challenges of the future
Written from a balanced, top-down perspective of the modern CFO, The Essential CFO provides you with practical prescriptions for executing impactful corporate finance strategies.
Table of Contents
Introduction xv
Part I: Strategy
Chapter 1: Articulating a Strategic Plan 3
Business Objectives 4
Strategic Themes 5
Long-Term Financial Model 7
Total Shareholder Return 10
Capital Allocation Strategies 14
Acquisition Strategies 15
Target Shareholders 17
Elevator Pitch 20
Plan Revisions 21
Chapter 2: Communicating and Achieving Alignment 23
Consistency and Transparency 24
Incentive Compensation Programs 25
Investor Alignment 28
Analyst Relations 29
Investor Presentations 31
Company Website 35
Social Media 36
Media Relations 37
Potential Media Pitfalls 38
Coordinating Communications 39
Interview Formats 39
Media Training 40
Note 42
Chapter 3: Assessing Enterprise Risks 43
Enterprise Risk Management 43
Implementation of ERM 44
Risk Identification 45
Risk Quantification 46
Major Exposures 47
Mitigation Strategies 50
Rewarded versus Unrewarded Risks 51
Governance of ERM 52
CFO’s Role in ERM 54
Part II: Capital Allocations
Chapter 4: Estimating the Cost of Capital 59
WACC Formula 59
Hurdle Rates 63
Risk Premiums 63
Acquisition Cost of Capital 65
Chapter 5: Prioritizing Capital Investments 67
Cash Flow Projections 67
Investment Budget 68
Evaluating Projects 71
Categorizing Projects 74
Monitoring Projects 75
Pension Fund Contributions 77
Chapter 6: Considering Dividends and Repurchases 79
Dividend Policy Alternatives 80
Dividend Policy Considerations 82
Special Dividends 85
Dividend Declarations 85
Repurchase Considerations 86
Open Market Programs 90
Tender Offers 92
Retaining Strategic Cash 92
Cash Investment Policies 95
Part III: Mergers and Acquisitions
Chapter 7: Identifying Acquisition Candidates 99
Rationale for Acquisitions 99
Adjacent Spaces 100
Portfolio Approach 101
Business Sponsor 101
Patience and Flexibility 102
Strategic Purpose 102
Types of Acquisitions 103
Note 107
Chapter 8: Evaluating Acquisition Candidates 109
Valuation Methodologies 109
Standalone and Synergy Values 112
Pro Forma Analyses 113
Acquirer’s Stock Valuation 116
Risk Considerations 116
Chapter 9: Executing a Merger or Acquisition 119
Due Diligence 119
Business Plan 123
Financial Projections 124
Financing Plan 126
Price Negotiations 128
Contract Terms 129
Acquisition Integration 132
Note 134
Chapter 10: Executing Divestitures and Spinoffs 135
Divestiture Evaluations 135
Hiring Investment Bankers 136
Auction or Negotiated 137
Stock or Assets 139
Financing Conditions 139
Management Participation 140
Tax-Free Spinoffs 141
Split-Ups 142
Equity Carve-Outs 143
Chapter 11: Responding to Takeover Offers 145
Governance Policies 145
Reviewing an Offer 146
Conducting a Sale Process 148
Activist Shareholders 149
Going Private Transactions 149
Part IV: Funding
Chapter 12: Establishing Capital Structure Objectives 153
Leverage Targets 153
Leverage Criteria 155
Rating Agencies 157
Ratings Categories 158
Rating Agency Dialogues 160
Ratings Criteria 161
Informing Investors 162
Note 163
Chapter 13: Developing Financing Strategies 165
Financing Principles 165
Debt Financing 167
Equity Financing 171
Off Balance Sheet Financing 174
Debt Covenants 177
Debt Refinancings 179
Debt for Equity Swaps 180
Bankruptcy 182
Chapter 14: Ensuring Short-Term Liquidity 185
Bank Lines 185
Cash Planning 187
Contingency Planning 187
Liquidity Ratios 189
Working Capital Strategies 189
Trapped Cash 191
Chapter 15: Obtaining Long-Term Financing 193
Venture Capital 193
Private Equity 194
Initial Public Offering 195
Subsequent Equity Offerings 198
Term Loans 200
Syndicated Bank Loans 200
Investment Grade Securities 200
High Yield Securities 201
Strategic Alliances 202
Note 203
Part V: Performance
Chapter 16: Driving Business Performance 207
Organic Revenue Growth 207
Cost Reduction Strategies 211
Fixed versus Variable Costs 219
Note 219
Chapter 17: Providing Planning and Analysis 221
Budgets 221
Forecasts 225
Cash Flows 226
Performance Metrics 228
Business Unit Metrics 231
Performance Reports 232
Business Analysis 233
Chapter 18: Managing Financial Risks and Taxes 235
Insurance 235
Interest Rates 238
Currencies 239
Commodities 241
Inflation 242
Pension Fund 243
Tax Planning 244
Part VI: Accounting and Controls
Chapter 19: Establishing Accounting Processes 251
Financial Reporting 251
SEC Filings 255
External Auditors 259
Audit Committee 259
Note 260
Chapter 20: Communicating Financial Results 261
Earnings Call 261
Non-GAAP Measures 266
Earnings Guidance 267
Note 271
Chapter 21: Implementing Sarbanes-Oxley 273
Overview of Provisions 273
Auditor Independence 274
Certification of Financials 275
Assessment of Internal Controls 276
Chapter 22: Reinforcing Compliance and Controls 281
Control Environment 282
Auditor and Board Support 283
Foreign Corrupt Practices Act 285
Fraud Prevention 287
Whistleblowers 287
Cost of Compliance 288
Note 289
Part VII: Leadership
Chapter 23: Achieving Finance Transformation 293
Organizational Structure 293
Technology Systems 298
Process Reengineering 301
Outsourcing Advantages 303
Outsourcing Implementation 305
Analysis versus Data 308
Chapter 24: Developing Financial Talent 311
Recruitment Strategies 312
Development Objectives 316
Development Tools 320
Diversity 325
Future Requirements 325
Note 326
About the Author 327
Acknowledgments 329
Index 331
Samples
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