AFM203 Study Guide - Fall 2018, Comprehensive Midterm Notes - Strategic Planning, Scenario Planning, Risk Management
12 Oct 2018
School
Department
Course
Professor
AFM203
MIDTERM EXAM
STUDY GUIDE
Fall 2018
What is the CFO responsible for in an organization?
• Financial planning and forecasting
o Forecast
• 1 year
• Recalculating budget on a monthly or quarterly basis as the year progresses
• True performance
• Reasons why companies reforecast
▪ Management preference
▪ Business is volatile
▪ Something drastic happened in the business or industry that changed the
budget significantly
o Budget
• 1 year
• Prepared 3-6 months before the start of the year
• Numbers are static
• What the company is measured against
o Strategic planning
• Long-term
• 3-5 years
• Risk management
• Corporate governance
o Organization to make effective decisions
• Financial reporting
o Internal management reporting
• Support decision making for all departments in the company
o External reporting
• Banks
• Investors
• IFRS, accounting standards
• Mergers and acquisitions
o Capital budgeting
• Allocating capital that departments are allowed to use in a year
• Investor relation
o Convince investors to invest in the company
o Growth
• Treasury
o Cash management
• Systems/IT
What is the role of a Finance function within an organization?
• Bookkeeping
• Explaining why the company is deviating from the budget
• Filing corporate tax
• Providing capital needed for all business functions and operations, acquisitions, investments,
marketing
• Keep track of creditors and debtors
• Bank statements, cash flow statements
o Forecasting when the company will run out of cash
find more resources at oneclass.com
find more resources at oneclass.com
o Calculating ratios
• Valuations for takeovers
o Financial modelling
• Business partnerships
o Communicating between teams in the company
What types of Finance roles will AFM 203 prepare you for?
• Performance measurement
• Corporate accounting
• Internal reporting
• Internal audit
• Risk management
• Compliance focus
• Project management
Elements of a High Quality Decision
a. An appropriate frame
a. Understanding problem
b. What needs to be achieved & people involved
b. Creative, doable alternatives
a. Choose alternative that enables to achieve the most of what you want
c. Meaningful information
a. Reliable, unbiased and reflects uncertainties
d. Clarity about desired outcomes
a. Company strategy
e. Solid reasoning and sound logic
a. Uncertainty
f. Commitment actions
a. All stakeholders are committed and what to do what you are suggesting
b. Stakeholder "buy-in"
Types of Decisions
1. Operating
a. Day-to-day decisions
b. Front line managers
c. Textbooks call it relevant costing
d. e.g. inventory management, product mix, supply chain management
2. Investment
a. Capital allocation to maximize return
b. Textbooks call it capital budgeting
c. e.g. expanding capacity, buying a company, research and development
3. Financing
a. How to pay for investments & expenses
b. e.g. long term debt, issue new shares/IPO, line of credit
4. Strategic
a. Advancing company's mission and vision
b. e.g. partnerships, pricing, build vs. buy
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Financial planning and forecasting: forecast, 1 year, recalculating budget on a monthly or quarterly basis as the year progresses, true performance, reasons why companies reforecast, management preference, business is volatile. Something drastic happened in the business or industry that changed the budget significantly: budget, 1 year, prepared 3-6 months before the start of the year, numbers are static, what the company is measured against, strategic planning. Long-term: 3-5 years, risk management, corporate governance, organization to make effective decisions. Support decision making for all departments in the company: external reporting, banks. Ifrs, accounting standards: mergers and acquisitions, capital budgeting, allocating capital that departments are allowed to use in a year. Investor relation: convince investors to invest in the company, growth, treasury, cash management. What is the role of a finance function within an organization: bookkeeping, explaining why the company is deviating from the budget, providing capital needed for all business functions and operations, acquisitions, investments,
