The New CFO Financial Leadership Manual, Second Edition

Chapter 2. Financial Strategy

This book is built around the concepts of financial management, analysis, and accounting, as well as the procurement of funding. However, the true test of the CFO is in the quality of decisions made on topics that impact a company’s finances. For the other topics, the CFO can hire quality controllers and financial analysts who can take care of matters quite nicely from an operational perspective. But in the area of making financial strategy decisions, the buck stops at the CFO’s desk. In this chapter, we will review a number of common decision areas that a CFO is likely to face. They are generally grouped in the order in which the topics can be found on the balance sheet and then the income statement. The chapter finishes with the discussion of throughput analysis, and how it can change your way of thinking about financial decisions.

Cash

Reducing Foreign Currency Exposure

A CFO whose company engages in international trade must be concerned about potential changes in the value of its trading partners’ currencies. For example, if a company sells products to a French company and receives payment after the euro loses value, then the company absorbs the reduction in value of the euro, creating a loss. Any one or a combination of the following approaches may be used to avoid incurring such a loss:

• If selling to a foreign customer, avoid long customer payment terms. If long terms are necessary in order to secure a sale, then offset the potential currency risk ...