Can you please help me with some Finance Dept objectives and an example of Finance Department Process Flow.
Thank you
Answer AVANTHI,
HERE IS SOME USEFUL MATERIAL.
REGARDS
LEO LINGHAM
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THIS IS THE BROAD SCOPE OF THE FINANCE DEPARTMENT.
Primary objective OF FINANCE DEPARTMENT
Direct, control and administer the financial activities of the organization, and provide the Chief Executive and the Board with financial assessments and information which will ensure planning and budgeting activities meet corporate goals.
Specific accountabilities
In consultation with other senior management, make recommendations and devise financial policy approach, and strategy.
Establish and direct the organisation's financial administrative activities and operational procedures to ensure the organisation's profits are protected.
Plan the financial operations of the organisation.
Provide financial information and interpretations to other management.
Co‑ordinate the development, implementation and monitoring of financial accounting and related systems.
Direct the collection of financial and accounting information and the preparation of budgets, reports, forecasts, and consolidated profit and loss reports.
Co‑ordinate the design, implementation and monitoring of up‑to‑date or computerised accounting and administrative systems.
Direct and co‑ordinate economic research, major feasibility studies involving detailed financial analysis, and estimates of future returns on proposed investment.
Evaluate the financial aspects of proposed acquisitions, investments, mergers, or the sale of assets or businesses.
Give assessments of proposals involving financial expenditure and of the financial status of operational projects.
Control activities such as taxation, credit policy, cash flow and investment policy, costing and expense control, preparation of tenders, audits administration of contracts, insurance arrangements and property administration.
Represent the organisation in dealings with the organisation's bankers, legal advisers, major clients and others as required.
Make policy decisions and accept responsibility for operations, performance of staff, achievement of targets and adherence to budgets, standards and procedures.
Control the selection and training of finance staff, establish lines of control and delegate responsibilities to subordinate staff.
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THE SECTION BREAKDOWN OF THE FINANCE DEPARTMENT
WOULD VARY WITH THE COMPANIES. A BROAD GUIDELINE
OF THE SECTIONS ARE AS FOLLOWS.
AGAIN THE PROCESS WOULD VARY WITH EACH SECTION
AND COMPANY.
Finance Functions
SECTION 1
Budget preparation
Budget administration
Cost allocation
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SECTION 2
Accounts payable
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SECTION 3
Payroll
Fringe benefits
Medical Benefits administration
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SECTION 4
Billing
Credit Administration
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SECTION 5
Contract administration
Property inventory
Fixed assets records
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SECTION 6
General accounting records
Custody of funds
Cash flow
Investments
Debt administration
Risk management
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SECTION 7
Internal financial reports
External financial reports
Statutory reports
Tax reports
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THE OBJECTIVES OF THE FINANCE DEPARTMENT IS
SET UP, AFTER REVIEWING THE
AFTER REVIEWING THE ABOVE FOUR
THE FINANCE OBJECTIVES ARE SET.
The following are examples of financial objectives:
Growth in revenues
Growth in earnings
Wider profit margins
Bigger cash flows
Higher returns on invested capital
Attractive economic value added (EVA) performance
Attractive and sustainable increases in market value added (MVA)
A more diversified revenue base
THE FOLLOWING RATIOS ARE CONSIDERED FOR
SETTING OBJECTIVES.
Turnover of Total Operating Assets
NET SALES / TOTAL OPERATING ASSETS.= ratio.
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Net Sales to Tangible Net Worth
NET SALES / TANGIBLE NET WORTH = ratio.
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Gross Margin on Net Sales
GROSS MARGIN/ NET SALES = ratio.
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Operating Income to Net Sales Ratio
Operating income / net sales = ratio.
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Gross Profit on Net Sales
GROSS PROFIT/ NET SALES = ratio
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Net Profit on Net Sales
NET PROFIT / NET SALES =ratio
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Net Profit to Tangible Net Worth
Net Profit / Tangible Net Worth = Ratio
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Net Operating Profit Rate Of Return
NET PROFIT BEFORE TAX/ TANGIBLE NET WORTH = ratio
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Management Rate Of Return
OPERATING INCOME / [FIXED ASSETS + NET WORKING CAPITAL
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Earning Power
NET SALES / TANGIBLE NET WORTH
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Current Ratio
CURRENT ASSETS / CURRENT LIABILITIES = ratio
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Quick Ratio
CASH +MARKETABLE SECURITIES+ NET ACCOUNTS RECEIVABLE/ CURRENT LIABILITIES =ratio
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Absolute Liquidity Ratio
CASH + MARKETABLE SECURITIES / CURRENT LIABILITIES=ratio
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Receivables Turnover
TOTAL CREDIT SALES / AVERAGE RECEIVABLES OWING = ratio.
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Average Collection Period
ACCOUNTS + NOTES RECEIVABLE/ ANNUAL NET CREDIT SALES x 365 =RATIO
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Inventory Turnover
COST OF GOODS SOLD / AVERAGE INVENTORY = ratio.
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Retained Earnings to Total Assets
RETAINED EARNING / TOTAL ASSETS =ratio
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PRICE EARNINGS RATIO
MARKET PRICE OF COMMON STOCK PER SHARE/EARNINGS PER SHARE =ratio
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MARKET TO BOOK RATIO
MARKET PRICE OF COMMON STOCK PER SHARE/BOOK VALUE OF EQUITY PER SHARE =ratio
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DIVIDEND YIELD
ANNUAL DIVIDENDS PER COMMON SHARE/MARKET PRICE OF COMMON STOCK PER SHARE=ratio
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DIVIDEND PAYOUT RATIO
CASH DIVIDENDS / NET INCOME = ratio
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I MUST ALSO BRING TO YOUR NOTICE THE FOLLOWING:
-determine the KRAs of the FINANCE DEPARTMENT.
-FOR EACH KRA , ONE OR TWO KPis are set
which become the objectives for the financial year.
EXAMPLE
Finance and Accounting
KRAs include
KRA 1 =Capital expenditure
KPi 1 =Cost of Capital [ within 5% of the budget]
KPi 2 =Capital availability [ 100% ]
