Management » Value creation: the role of the CFO

Value creation: the role of the CFO

By Guillaume de Pommereau

Every decision that a business makes has financial implications, any decision which has a financial implication is in the remit of the finance department.

Defined broadly, everything that a business does fits under the rubric of the finance department.

And the finance department must drive all these decisions towards the creation of value.

Companies can create operational value in four areas:
(respecting the environmental, social and governance principles)

Use this check list of 28 topics to improve bottom line and cash flow. The CFO is at the heart of all these topics. Decisions should positively impact profit and cash flows.

The enterprise value is a direct function of the current and future cash flows. The discounted cash flow model formalises this calculation.

Then you need to ask yourself how the enterprise is owned. If it is all equity, the equity value will grow in parallel with the enterprise value.

If the shareholders have also used a certain amount of debt to own the enterprise, then the increase of Enterprise Value will be directly injected into the equity value since the debt is fixed.
The result is that the equity value will grow proportionately more than the enterprise value (EV).

For example, if you manage to increase the EV by 10 percent and the ownership of the company is 50 percent equity and 50 percent debt, then the equity will grow by 20 percent.

This is, in a nutshell, what a CFO value creation agenda is all about: simple, efficient, elegant!

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