19-1 Most Important Skills Needed by CFOs
1. This acetate clearly outlines the necessary skills required to be a chief
financial officer for a firm.
2. CFOs are tasked with guarding the financial health of their organizations.
This requires that they know what the financial numbers mean to the
company. The tasks of a CFO also involve:
Serving as advocates for overall financial decisions
Interpreting how the numbers relate to company tactics and goals
Understanding how to drive change
Communicating good and bad news, opportunities and times for financial
restraint to their CEOs.
3. In addition to the skills listed on the acetate, The Levin Group of Corporate
Advisors identifies another skill necessary for CFOs to perform in today’s
dynamic business world. The term they use is “Emotional Intelligence.” To
properly understand the business world and the organization, CFOs must
master the following:
Conscious self-knowledge – recognize thoughts and emotions,
strengths and weaknesses as they occur
Maintaining appropriate control – the ability to deal with situations
without over-or-under reacting
Maintaining motivation – the ability to keep a healthy and realistic
Recognizing others’ interests - the ability to recognize the needs and
perspectives of others
Communicating with flexibility – the ability to vary your influence
style based on the needs of your audience
4. As a class project, have the students get into groups and design a classified
advertisement for a CFO. An advertisement for a CFO may look like this: “The
ideal candidate will be experienced in the process of financial management and
organizational change. The candidate will develop and monitor financial plans,
target financial objectives and monitor financial performance. Strong computer
modeling and spreadsheet skills required. The ability to apply financial skills to
the broader context of total business. Ten to fifteen years of progressing
experience in all phases of financial management.”
19-2 Non-Finance Functions of a CFO
1. This acetate highlights the non-finance functions and skills of a chief financial
2. Successful CFOs are required to wear many hats in the organization. While
specific responsibilities of a CFO will vary between large and small
companies, and public and closely held companies, the principals of control
and treasury responsibilities transgress all boundaries.
19-3 What Financial Managers Do
1. This acetate gives the student a broad overview of what responsibilities
financial managers have within a corporation.
2. The CFOs responsibilities are rooted in the functions of “control” and
“treasury.” The control function has its basis in the budgeting process:
The budget represents the quantification of the goals and missions of
the company as manifested by the resources required to attain those
The budget becomes the scorecard by which the company as a whole
3. The other area of responsibility for CFOs is the treasury function.
Procurement of financial resources available to the company
Ongoing communication with financial sources, investors, and debt
holders who must be kept apprised of the firm’s financial performance
Allocation of resources within the context of the company budget
19-4 Uses of Excess Funds
1. This acetate points out the key role the finance manager holds in an
2. A key point of this acetate is that it’s not just enough for the financial manager
to raise capital. The financial manager must know the appropriate use for
funds that the organization requires. An example of such a strategy is when a
financial manager sets objectives of safety, liquidity, and yield for the
company’s investment strategy
3. CFO’s may follow an outline similar to what is listed below in using excess
Income producing investments or accounts will be sought
Diversify among types of maturities of the investments purchased
No more than 15% of the portfolio may be invested in one type of
No investment of more than 10% in one single corporation
19-5 Financial Planning Process
1. This acetate reinforces material in the chapter and takes the students step-by-
step through the financial planning process. It’s important they distinguish
between the role of financial managers and accountants.
2. It might be helpful to explain the following terms to the class:
Market risk – relates to the possibility the firm can lose money because
of economic or other swings in investment markets.
Inflation risk – an increase in inflation can wipe out expected returns
the firm anticipates.
Liquidity risk – the more liquid an investment is, the easier it is to sell
it if cash is needed.
Credit risk – investment in bonds or stock could fail to generate the
Currency risk – heavy investment in foreign securities or currencies
can result in huge swings in expected returns.
3. A financial manager must be aware of all investment risks when managing the
19-6 Financing Daily Operations Cash Flows
1. This acetate provides a clear example of the flow of cash in and out of the
company. Make certain the students understand where all the money flowing
into the company is coming from and where it is intended to go.
2. Explain to the class the significance of managing cash flow to an organization.
To be competitive, business owners must prepare for all future events and
market changes. One of the most important aspects of such preparation is
cash flow planning. Failure to properly plan cash flow is one of the leading
causes for small business failures.
3. To achieve a positive cash flow it is recommended to implement the following
Collecting Receivables – actively manage account receivables and
quickly collect overdue accounts. Revenues are lost when a firm’s
collection policies are too passive.
Tightening credit requirements – In theory, tightening credit
requirements will increase your cash flow, but may make it harder to
increase your sales. Any changes in credit terms should be measured
against a possible increase in uncollectible accounts.
Adjusting the price of products – Price is a critical element in
achieving a profit and maintaining positive cash flow. You must
understand the following items when pricing your product:
a. Cost of producing the product or service
b. Cost of operating expenses
c. Expected profit margins
d. What the competitive pricing climate is in the market
e. Overall company pricing policy; mark up on cost or mark up
on selling price
19-7 Ways to Cut Costs
1. This acetate identifies several areas where companies can make changes to
2. reduce their costs and remain more competitive.
3. A recent article published by Rosabeth Kantor, Harvard Business School
professor, identified a checklist of cost savings measures, which include:
Speeding collection and slowing payments
Slashing travel and entertainment budgets
Charging for things that were once free
Renegotiating purchase contracts
Putting selected R&D, technology or capital spending projects off until
a later time
Cutting labor cost (people), especially outside core areas
4. As a result of the times we live in, companies are increasingly turning to
outsourcing as a way to cut costs. The reasons most often given for
Special needs are available outside the company
Outsourcing allows companies to concentrate on key activities and
hire experts to provide other necessary functions
Decreased overhead expenses
5. Although outsourcing is expected to increase among businesses and
government agencies, there are significant responsibilities that companies
must evaluate when outsourcing. Some are listed below:
Management of outsourced activities can take as much as 13-44 hours
per week depending on the activity.
Managing outsourced activities such as engineering, preventive
maintenance, and architecture and design typically take the most time.
Contractor selection represents a challenging and difficult decision the
company must make when choosing to outsource.
19-8 Sources of Equity Financing
1. This acetate should help students in distinguishing between equity capital
generated from internal sources as opposed to external sources.
2. Equity financing is the most common source of financing for small
businesses. Small businesspersons often seek funding from friends, relatives,
and angel investors. Quite often such investors expect a piece of the business
in return for their financing assistance. Often a part of the business provided to
investors can include:
A specific portion of ownership
Possibly an active role in running the business
3. Retained earnings as a source of capital is typically not available until your
business is established.
4. Venture capitalists represent a growing avenue of equity financing for
business. This will be discussed more in the comments from acetates 19-9
19-9 Venture Capital Investments
1. This acetate shows the peak of investment by venture capitalists in the year
2000 ($100 billion plus), then the ensuing dot-com meltdown that saw
investment fall to approximately $21 billion two years later.
2. Venture capital companies are financial institutions that provide equity for
businesses just starting or emerging businesses. Venture capitalists often will
provide funding for revolutionary technologies and ideas. Share the following
information with the class:
Venture capital (VC) funding faded from $41 billion in 2001, to barely
$21 billion in 2002.
According to VentureOne, VC firms in the Silicon Valley are facing
their worst slump in three decades.
3. What can VC firms do in dealing with such an unpredictable environment?
Look for a solid business plan or emerging technology when choosing
to invest money
Identify what the expected growth of the venture capital investment is
expected to be
See how equipped entrepreneurs they invest money with are in
adapting to business conditions
Locate “solid, bottom-line companies” and those with compelling new
19-10 Number of Venture Capital Deals
1. This acetate differs from the previous acetate and reflects the number of
venture capital transactions that have occurred since the peak dot.com era of
the 1990s and early 2000.
2. The number of VC deals has dropped from approximately 8,200 during the
year 2000, to about 3,000 for year-end 2002; a whopping 63.4% drop in the
number of business deals involving VC firms.
3. Share with the class some interesting facts as published by VentureOne
regarding the downward trend of VC investing:
VC funding is down 80%, median size funding down by $500,000,
number of big deals also down significantly
Total VC activity declined 44% in 2002.
United States VC firms invested only $21 billion in 2002
19-11 Market Use of Leverage
1. This acetate illustrates the use of financial leverage when comparing the
issuance of selling bonds and the equity sale of stock.
2. Help the students understand financial leverage by defining the term.
Financial leverage is the use of debt to magnify the rate of return on
shareholders’ equity. Ask the students to compare the two options on the
acetate and choose which one they think is the right alternative.
3. Note that both options have an effect on the company’s financial health.
Issuing bonds will increase the debt the company has on their books; while the
issuance of stock will tend to dilute the stock price. In both cases the
company receives an inflow of cash.