ENTERPRISE OPERATIONS (E1)

UNIT 2: THE SHAPE & STRUCTURE OF THE

FINANCE FUNCTION
LESSON 4
 Lecture Outline: Term 1
UNIT Unit Title Chapter Chapter Title

TERM 1
UNIT 0 Introduction to Slides Introduction to E1
Enterprise Operations
Chapter 1 The roles of the finance function in
The role of the finance organisations
UNIT 1 function Chapter 2 The activities performed by finance
professionals to fulfill the roles
Chapter 3 The structure and shape of the
The shape and structure finance function
UNIT 2 of the finance function Chapter 4 What each level of the finance
function does

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 Lecture Outline: Term 1
Tutor classes/videos
1 Summary Unit 1 & How to tackle OTQs
UNIT TUTORIAL CLASSES
1-2 2 Summary Unit 2 & How to tackle Long
Ques.

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 CHAPTER 4
What each level of finance function does
Chapter 4: Outline & Outcomes

Finance operations
Specialist areas
Strategic partnering
Strategic leadership of the finance team
The impact of technology

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SHAPE OF THE
FINANCE FUNCTION
What each level of the finance function does
Introduction…

LINK
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FOUR LEVELS OF THE DIAMOND SHAPE

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LEVEL 4:
FINANCE OPERATIONS
FINANCE OPERATIONS

Basic components of finance function

(accounting operations);

Data at this level becomes the foundation

of finance professionals

LEVEL 4 : FINANCE
OPERATIONS
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LEVEL 4: FINANCE OPERATIONS
Finance operations consist of the following often inter-related
components:

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LEVEL 4: FINANCE OPERATIONS
The components of finance (accounting) functions
Fin/ Account • Routine accounting
Reporting • Providing accounting reports for other department
(Fin. Controller)
• Cashiers’ duties and cash control
Management • Cost accounting
Accounting • Budgets and Budgetary controls
(Man. Accountant)
• Financial management of projects
Treasury • Raising funds by borrowing
(Treasury)
• Investing surplus funds
• Cash flow control
Internal • Checking compliance with internal and external
Audit • Prevention, detection and avoidance of fraud
(Internal Auditors)

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LEVEL 4: FINANCE OPERATIONS
1. Financial Reporting
Concerned with the production of financial information for external
users;
Financial information includes:
Financial statements
Statement of Profit and Loss (SOPL),
Statement of Financial Position (SOFP),
Statement of Cash Flows
Tax reporting
Regulatory reporting

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LEVEL 4: FINANCE OPERATIONS
1. Financial Reporting
Why do businesses need to prepare financial statements?
Users of financial statements

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LEVEL 4: FINANCE OPERATIONS
1. Financial Reporting
Financial Accounting Ratios:
EPS
PE Ratio Earnings per Share
Dividend Yield
Price-Earnings Ratio

Dividend Yield
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LEVEL 4: FINANCE OPERATIONS
1. Financial Reporting (Ratios)

Earnings per Share = Net Income

Shares Outstanding

Price-Earnings Ratio = Price per Share

Earnings per Share

Dividends Yield = Dividend per Share

Current Share Price

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LEVEL 4: FINANCE OPERATIONS
2. Management Accounting
Management accounting is the provision of information to help managers and
other internal users in their decision making, performance measurement,
planning and control activities.

Cost schedules
Budgets
Variance reports

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LEVEL 4: FINANCE OPERATIONS
Management Accounting Financial Reporting
Why information is For internal use For external use
mainly processed (i.e. Managers & Employees) (i.e. Shareholders, Creditors, etc.)
Purpose of the To aid planning, controlling andTo record the financial performance
information decision making & financial position
Legal requirements NONE Ltd companies must produce
audited financial statements
Formats Management makes a decision According to the accounting
on the most useful presentation standards
Nature of Financial and non-financial Mostly financial
information
Time period Historical and forward-looking Mainly historical
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LEVEL 4: FINANCE OPERATIONS
3. Treasury Management
Treasury management is the management of funds of the business
namely;
Working capital management
Cash management
Financing
Foreign currency
Tax
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LEVEL 4: FINANCE OPERATIONS

Treasury Ratio – Funding Management

Gearing Ratio
Debt-to-Equity Ratio
Total Debt Ratio
Equity Multiplier
Times Interest Earned
Cash Coverage

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LEVEL 4: FINANCE OPERATIONS
Treasury Ratio – Funding Management
Two main source of funding
Debt-Equity Ratio = Total Debt
Total Equity
• Debt
• Equity

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LEVEL 4: FINANCE OPERATIONS
4. Internal audit
Internal audit is an independent activity, established by management to
examine and evaluate the organisation’s risk management processes
and system of control…

Purpose of internal audit

Scope of internal audit

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LEVEL 4: FINANCE OPERATIONS
4. Internal audit
The purpose of internal audit can be summarized as follows:
Role Monitor the cash balance and working capital to ensure that it never
runs out of money
Legal basis Preparation of cash budgets and arrangement f overdrafts where
necessary
Scope of work Monitor the investments and borrowings to limit exposure &
increase returns
Approach Manage exchange rates and minimize losses due to foreign
exchange rates
Responsibility Manage affairs legally to avoid as much tax as possible

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LEVEL 4: FINANCE OPERATIONS
Recent changes in finance operations:
Shares Service Centre (SSC) – Chapter 3
Technology
 Robotics
SMART FINANCE FACTORIES
 Process automation (CH 6)
 Cognitive computing
 Block chain

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LEVEL 3:
SPECIALIST AREAS
SPECIALIST AREAS
Experts who provide insight derived from
the information that has been handed over
to them (from Level 4);

Insights create building blocks of the

organisation’s value creation.

LEVEL 3: SPECIALIST
AREAS

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LEVEL 3: SPECIALIST AREAS
We will look at how the finance function work with the
specialist areas :

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LEVEL 3: SPECIALIST AREAS
1. Financial planning and analysis (FP&A)
Financial Planning and cash flow management is an important tool in
ensuring that an organisation is profitable and continues to grow;

Responsibilities include:
Looking at the effectiveness of current investments
Gauging overall financial performance
Identify which products are most profitable
Preparing budgets

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LEVEL 3: SPECIALIST AREAS
2. Taxation
Taxation specialists play an important role in an organisation in
minimising risk and creating value by focusing on;

1. TAX COMPLIANCE – following legislation, regulation and

procedures and

2. TAX PLANNING – working on the most tax efficient manner to

reduce tax paid and create value
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LEVEL 3: SPECIALIST AREAS
3. Project Management
Project management is an integration of all aspects of a project,
ensuring that the proper knowledge and resources are available ….
Five stages of project management;
1. Initiation
2. Planning
3. Executing
4. Controlling
5. Review and close

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LEVEL 3: SPECIALIST AREAS
4. Project Appraisal
Project appraisal will take place prior to the project management
process and involves an assessment and evaluation of many decisions…

To appraise a potential project – Some of the appraisal

Estimate costs and benefits of the investment methods;
Select an appraisal method 1. Payback Method
Decide 2. Net Present Value
3. Internal Rate of return

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LEVEL 2:
STRATEGIC PARTNERING
FOR VALUE
STRATEGIC PARTNERING
FOR VALUE

LEVEL 2: STRATEGIC
PARTNERING
Level 2 involves:
• Communicating insight to influence users and
• Business partnering.

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LEVEL 2: STRATEGIC PARTNERING FOR VALUE
Strategic partnering involves:
Communicating insight to influence users and
• Will generate information and preliminary insight (Level 4) and
• Work with specialist to provide further insights to decision makers (Level 3)
Business partnering
• Influencing the organisation’s decisions to achieve the desired
organizational impact;
• Are seen as leaders that can influence the decision that the business makes
to maximize value.
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LEVEL 1:
STRATEGIC LEADERSHIP OF
THE FINANCE FUNCTION
STRATEGIC LEADERSHIP OF
THE FINANCE FUNCTION
LEVEL 1: STRATEGIC
LEADERSHIP
CFO Leading the finance team to
achieve the desired organisational impact

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LEVEL 1: STRATEGIC LEADERSHIP OF THE FINANCE FUNCTION

Strategic leadership of the finance function is the final activity:

CFO – Head of the finance function and has the responsibility of
leading the finance team to achieve the desired organizational impact:

Leading key initiatives that support the organisations goals;

Executing and funding strategies set by the CEO;
Liaising effectively with internal & eternal stakeholders;
Working with CEO’s as co-pilot in the success of the business
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LEVEL 1: STRATEGIC LEADERSHIP OF THE FINANCE FUNCTION

Strategic leadership of the finance function is the final activity:

Today’s CFOs need a wider skill set:

Processing strong analytical and communication skills

Mastering areas outside of finance (i.e. regulation, risk management,
business transformation, supply chain management and IT)

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IMPACT OF TECHNOLOGY ON THE
ACTIVITIES OF FINANCE
PROFESSIONALS
IMPACT OF TECHNOLOGY ON THE ACTIVITIES OF FINANCE
PROFESSIONALS

Opportunity Threat

 Used to improve efficiency and  Used to reduce or replace many of the

productivity of finance professionals traditional roes and activities of finance
professionals.
 Free up the finance professionals
time to work on more interesting,
challenging, value-adding work

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Information to impact framework – revisited (Ch. 2 & 3)

 Technology and automation will have the largest impact on the ‘assembly
and analyse’ activities;

 This will ‘free up’ resources of the finance function professionals to ‘advise
and apply/execute’ activities.
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New data sources and analysis methods

 New data sources and advanced methods for

analysing data are providing opportunities for
better informed decision making.

 I.e. Predictive analysis – improved forecasting

and reduced the need to rely on personal
judgement of finance professionals.

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AUTOMATION AND COGNITIVE COMPUTING
2016 McKinsey report studied which functions could be
automated by advancing technology:

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AUTOMATION AND COGNITIVE COMPUTING
McKinsey illustration can be overlaid across the diamond shape
of the finance function:

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AUTOMATION AND COGNITIVE COMPUTING
New technology being used includes:

Robotic Process Automation (RPA)

Cognitive computing (AI, Machine

learning, etc.)

New Technology

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CHAPTER 4 - SUMMARY
SUMMARY OF CHAPTER 4
Introduction

Impact of Finance
technology on the operations
activities of finance (LEVEL 4)

END What each level of the

finance function does

OF
UNIT 3 Strategic leadership
of the finance team
Specialist areas
(LEVEL 3)
(LEVEL 1)

Strategic
partnering for
value (LEVEL 2)
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 NEXT CLASS:
LECTURE 5 - UNIT 3 (Chapter 5)

AO1 = 31 MARCH (Unit 1 - 3)