Financial Planning & Analysis and Performance Management

by Alexander, Jack

• ISBN13: 9781119491484
• ISBN10: 1119491487
• eBook ISBN(s): 9781119491453
• Edition: 1st
• Format: Hardcover
• Copyright: 2018-06-13
• Publisher: Wiley
• More Book Details

Summary

Critical insights for savvy financial analysts

Financial Planning & Analysis and Performance Management is the essential desk reference for CFOs, FP&A professionals, investment banking professionals, and equity research analysts. With thought-provoking discussion and refreshing perspective, this book provides insightful reference for critical areas that directly impact an organization’s effectiveness. From budgeting and forecasting, analysis, and performance management, to financial communication, metrics, and benchmarking, these insights delve into the cornerstones of business and value drivers. Dashboards, graphs, and other visual aids illustrate complex concepts and provide reference at a glance, while the author’s experience as a CFO, educator, and general manager leads to comprehensive and practical analytical techniques for real world application.

Financial analysts are under constant pressure to perform at higher and higher levels within the realm of this consistently challenging function. Though areas ripe for improvement abound, true resources are scarce—until now. This book provides real-world guidance for analysts ready to:

• Assess performance of FP&A function and develop improvement program
• Improve planning and forecasting with new and provocative thinking
• Step up your game with leading edge analytical tools and practical solutions
• Plan, analyze and improve critical business and value drivers
• Build analytical capability and effective presentation of financial information
• Effectively evaluate capital investments in uncertain times

The most effective analysts are those who are constantly striving for improvement, always seeking new solutions, and forever in pursuit of enlightening resources with real, useful information. Packed with examples, practical solutions, models, and novel approaches, Financial Planning & Analysis and Performance Management is an invaluable addition to the analyst’s professional library. Access to a website with many of the tools introduced are included with the purchase of the book.

Author Biography

JACK ALEXANDER is an experienced CFO and operating executive turned consultant, author, and educator. As the founder of Jack Alexander & Associates, LLC, he provides advice to businesses across a wide range of financial and operating areas, with a focus and passion on Financial Planning & Analysis (FP&A) and Performance Management (PM). The firm also offers customized training and workshops on FP&A. He is a frequent speaker on FP&A and PM. He is the author of Performance Dashboards and Analysis for Value Creation and Financial Planning and Analysis and Performance Management, both from Wiley.

Table of Contents

Preface xv

About the Website xix

1 Financial Planning & Analysis and Business Performance Management 1

The Problem with Traditional Measurement Systems 1

Objectives of Financial Analysis and Performance

Management 3

Preview of the Book 6

Summary 9

Part One Fundamentals and Key FP&A Capabilities

2 Fundamentals of Finance 13

Basics of Accounting and Financial Statements 13

Financial Ratios and Indicators 19

Summary 42

3 Key Analytical Tools and Concepts 43

Basic Statistical Tools 43

The Business Model 59

Summary 69

4 Developing Predictive and Analytical Models 71

What Is a Financial Model? 71

Summary 81

Appendix: Illustrative Model 81

5 Building Analytical Capability 89

For the Individual 90

For the Organization 94

Summary 108

6 Communicating and Presenting Financial Information 109

Laying the Foundation for Success 110

Developing Effective Presentations and Reports 117

Delivering the Presentation 120

Data Visualization and Presentation: A Picture Is Worth a Thousand Words 121

Summary 134

Part Two Performance Management

7 Business Performance Management 137

What Is Business Performance Management? 138

Developing or Enhancing BPM in an Organization 144

Summary 155

8 Dashboards and Key Performance Indicators 157

Objectives of Dashboards and Key Performance Indicators 157

Selecting Appropriate Performance Measures and Key

Performance Indicators 160

Creating Performance Dashboards 166

Sample Dashboards for Selected Industries 175

Summary 175

9 Institutionalizing Performance Management 179

Gaining Traction 179

Integrating Business Performance Management with Other

Management Processes 183

Avoiding Common Mistakes 189

Summary 191

10 Measuring and DrivingWhat’s Important:Innovation, Agility, and Human Capital 193

Innovation 194

Measuring and Driving Business Agility 204

Human Capital Management 214

HCM Dashboard 226

Summary 226

11 The External View: Benchmarking Performance and Competitive Analysis 227

Analysis of Markets, Customers, and Competitors 228

Benchmarking to Evaluate Performance 232

Using Benchmarks to Set Enterprise Goals for Performance and Value Creation 242

Summary 243

Part Three Business Projections and Plans

12 Business Projections and Plans: Introduction and Best Practices 247

Overview of Business Planning and Projections 248

Best Practices in Projecting Future Financial Results 252

Summary 266

13 Budgets, Operating Plans, and Forecasts 267

The Budgeting Process 267

The Operating Plan 272

Business Forecasts and Outlooks 277

Summary 301

14 Long-Term Projections 303

Unique Challenges in Estimating Long-Term Performance 304

Applications of Long-Term Projections 305

Developing Long-Term Projections 307

Presentation of Long-Term Projections 319

Summary 325

Part Four Planning and Analysis for Critical Business and Value Drivers

15 Revenue and Gross Margins 329

Revenue Growth: Key Drivers 330

Key Performance Measures: Revenue Growth 343

Revenue Dashboard 351

Gross Margins and Relative Pricing Strength 351

Measures of Relative Pricing Strength 356

Summary 359

16 Operating Expenses and Effectiveness 361

Drivers of Operating Effectiveness 362

Key Performance Indicators: Operating Effectiveness 365

Tools for Assessing and Improving Operating Effectivenss 382

Summary 387

17 Capital Management and Cash Flow:Working Capital 389

Critical Success Factors 391

Operating Capital Management 393

Understanding the Dynamics of Operating Capital 394

Unleashing the Value Trapped in Operating Capital 396

Accounts Receivable 398

Key Performance Indicators for the Revenue Process and

Accounts Receivable 401

Inventories 410

Summary 420

18 Capital Management and Cash Flow:Long-Term Assets 421

Capital Intensity 421

Tools for Improving the Management of Long-Term Capital 424

Projecting Capital Investments and Depreciation 428

Key Performance Indicators for Capital Intensity 431

Intangible Assets 433

Key Performance Indicators: Goodwill and Intangible Assets 434

Excess Cash Balances 436

Long-Term Capital Dashboard 437

Summary 439

19 Risk, Uncertainty, and the Cost of Capital 441

The Time Value of Money 441

The Cost of Capital 449

Performance Measures 458

Summary 461

Part Five Valuation and Capital Investment Decisions

20 Capital Investment Decisions: Introduction and Key Concepts 465

The Capital Investment Process 466

Evaluating the Economic Merits of Capital Investments 469

Illustrations 478

Summary 484

21 Capital Investment Decisions: Advanced Topics 485

Dealing with Risk and Uncertainty in Capital Investment

Decisions 485

Presenting Capital Investment Decisions 499

Capital Budgeting and Rationing 500

Evaluating the Effectiveness of the Capital Investment

Decision Process 502

Summary 505

22 Business Valuation and Value Drivers 507

Estimating the Value of a Business by Discounting Future

Cash Flows 508

Estimating the Value of Firms by Using the Valuation

of Similar Firms: Multiples of Revenues, Earnings,

and Related Measures 517

Building Shareholder Value in a Multiples Framework 521

Integrated Valuation Summary for Roberts Manufacturing

Company 525

Value Drivers 528

Summary 533

23 Analysis of Mergers and Acquisitions 535

The Acquisition Challenge 535

Key Elements in Valuing an Acquisition 537

Methods and Metrics for Valuing an Acquisition 539

Common Mistakes in M&A 554

Best Practices and Critical Success Factors 557

Understanding Seller Best Practices 560

Key Performance Indicators for M&A 562

Dashboards for M&A 564

Summary 564

Part Six Summary

24 Summary and Where to from Here? 569

Key Takeaways 569

Where to from Here? 572

Glossary 575

Acknowledgments 585

About the Author 587

Index 589