Role of the Chief Financial Officer (CFO)

**Finance is important because it is the language of business and without it you cannot conduct
business.
Financial markets: The framework within which financial assets are traded.
Financial manager: Acts as an intermediary, linking the firm to financial markets.
**Most medium to large companies has CFO’s who perform the financing function with the
controller (controls the organization) and treasurer (goes out to the market and looks for
financing).
The CFO oversees the controller and treasury in a firm and together they implement the firm’s
financial planning. To be a good CFO you need to understand the company.
CFO has thorough understanding of whole company.
Objective of financial management and responsibility of the financial director: Guarantee the
liquidity of the company.
CFO Responsibilities
For a firm to create value, it must buy assets that create more income than their costs and finance
them properly. The CFO’s main task is to create value for the firm. The CFO is the no man (says
no to the departments of the firm
The CFO is responsible for setting the firm’s overall financial policy:
1. Decided which projects should be implemented and how they will be financed.
2. Develop the firm’s strategic planning.
3. Collaborate with other directors to achieve this.
4. The CFO is sometimes also a member of the steering committee or Board of directors.
CFO and financial planning
The core activities of the CFO are the following:
1. Controller: Check that the money is used efficiently.
2. Treasury: Obtain and manage the firm’s cash.
Roles under controller
• Manage the information system: To control the financial situation of the company.
• Support the investment decision-making: Analyzing investments.
• Manage administrative processes: To avoid delays and errors in operations.
• Apply the proper internal control procedures: Segregation of duties (in any company of a
certain size you need to be having people doing different tasks to guarantee that no one is
making fraud), authorization thresholds for key decisions.
• Comply with the applicable legislation: To avoid violations (taxes).
 • Optimize the tax efficiency (pay the less taxes possible). Tax regulations allow
companies to pay in different ways.
• Support the company’s ESG strategy.
• Advise general management in corporate decisions. CFO’s are key in all the decisions.
• Support/lead M&A processes of the company.
• Support operational areas.
**ESG: Environmental, social and governance. It is the new corporate social responsibility.
Companies must report on the impact on the environment so if you do it wrong possible investors
can be sacred.
**M&A: Merges and acquisitions, the process of purchasing or selling a company. CFO must
get the funding to buy a company.
Roles under the treasury
• Design and implement a financing structure: The financing of the business comes from
equity and external debt. The balance between this two must be consistent.
• Anticipate and obtain the financing required.
• Manage the monetary flows and the banks accounts: Ensure the liquidity to meed the
payments and creating surpluses.
• Manage the global risk of the company: Keeping the money aspects within reasonable
limits. Scenario analysis and hedging instruments are examples of responses to risk.
• Preserve financial flexibility: Understood as possibility of varying the volume and
structure of financing without incurring in excessive costs or delays. Anticipate problems
and take advantage of opportunities that arise.
• Analyze the credit risk of customers: To authorize deferred payment.
Treasury plan
Objective of financial management and responsibility of the financial director: Guarantee the
liquidity of the company. It is essential and necessary to have a treasury plan.
**Liquidity: The capacity of the company to fulfill its short-term debts. How the company
manages cash, to what extend it has money to keep performing.
Treasury plan: A budget for collections and payments. It is used to anticipate treasury problems
and facilitates liquidity management. Can be done weekly. To be sure that the cash is effectively
managed. Currently is done daily because of the pandemic.
It is not and income and expense budget, sales budget, cost estimate or investment budget. It is
not the business reality, it has to do with cash ins and cash outs, the treasury is kind of an after
consequence depending on the sensibility of migrations.
Net cash flow: Difference between the beginning and end of the month.
Closing balance: Tells clearly how our bank account is.
**A CFO needs to see how the future payments will be evolving and for this he uses this plan. To
evaluate liquidity risks. Built in expectations and that is why it is revisited every week.
Short-term financing: The more we grow, the bigger the gap will be between our collection
expectations and our payment expectations. We have to pay and wait for collections; we need
financing to manage this gap.
Importance of the CFO
CFOs drive the direction and success of the organizations the work in using their knowledge and
understanding of the financial position of the company. They are playing a much relevant role in
the company in a broad range of areas.
Examples of shifting role of CFO:
1. Identify risks related to different revenue streams: If you want to be a good CFO you
need to know how your business are evolving, it is important to understand how the
revenue drivers proceed.
2. Understand market conditions for company’s global strategy: Performing in group, how
things are globally. It is very risky for a company to have a CFO in the media because it
can affect the company.
3. Assume accountability for high impact decisions.
The Deloitte model: CFOs play four critical roles.
1. Catalyst: Catalyze behaviors across the organization to execute strategic and financial
objectives while creating a risk intelligent culture. A good CFO has to connect well with
the different departments.
2. Strategist: Provide financial leadership in determining strategic business direction. Vital
for the future performance of the company.
3. Steward: Protect and preserve the critical assets of the organization and accurately report
on the financial position and operations to internal and external stakeholders. He has to
give security and cover risks for the company.
4. Operator: Balance capabilities, talent, costs and services levels to fulfill the finance
organization’s core responsibilities efficiently. CFOs have in charge teams, resources and
operational responsibilities, they have to mange them appropriately.
**It is used to improve CFOs performance.
Exercise
Sales is not the same as collections.
Opening balance January 1st = Cash in balance sheet.
With VAT the first thing is to calculate the quarterly input and output.
TSR: Total Shareholder Return. What at the end of the day, the shareholder is gaining from its
investments.
Opening balance January 1st: The cash in the last balance sheet.
The closing balance of a month is the starting balance on the next column.
This company is destroying cash. The problem is related to the period of the payments.
We most add the VAT and remember that we charge it so we most receive the payment plus the
VAT.
In the purchases there is no delay.
Purchases start on the account’s payables.
Supplies and other expenses are paid in cash so there is no delay.
VAT payable = output VAT – input VAT.
In the first month we have half of the cash that we started with. We have been able to pay our
responsibilities and
You cannot have a negative cash position.
Corporate tax is applied to the EBT
Conclusions: The company obtains a positive result that generates a profit in the profit and loss
forecast. However, the company will a serious cash flow problem since May.
Balance sheet
Double accounting: Every change in the balance sheet has a corresponding effect.
On the accounting perspective we have assets, equity, and liability. The financial perspective
explains how the financiers look at the company.
On the financial perspective we have assets (non-operating assets), equity, financial debt and the
rest is the business.

**Business get financing from shareholder’s and banks.