Executive Corporate Finance: The Business of Enhancing Shareholder Value

1. Optimizing the Corporate Finance Function Introduction The External Business Environment and Corporate Financial Strategy The Strategic Logic of High Growth 2. Shareholder Value Maximization Introduction Corporate Valuation Valuation Models: Public Company Valuation Models: Closely held Company Corporate Performance Measurement: Economic Value Added (EVA) 3. Financial Policy Introduction Capital Structure Operating Leverage Dividend Policy Pricing Strategy Tax Planning Optimal Capital Budgeting with real Options Mergers and Acquisitions Asset-Liability Management: Optimizing the Balance Sheet 4. Risk Management Introduction Identifying and Estimating Risk Exposure Off-Balance Sheet (OBS) Risks Operational Risk Management Enterprise Wide Risk Management (EWRM) Risk Hedging Strategies 5. Financial Reporting, Planning and Control Introduction Financial Reporting: GAAP Convergence Business and Financial Planning Treasury Management Financial Control and Audit Optimize amid Changing Operating Conditions 6. Corporate Performance Management: The Balancing act? Introduction The Execution Problem The Balanced Scorecard Real-time Financial Systems: Corporate Performance Management (CPM) Integrated Financial Management Appendix: Applied Financial Optimization Modelling Value Maximisation: Analytical Techniques Company Size, Asset Utilization and Financial Leverage Brief Synopsis of each Chapter: Chapter 1: Introduction: Optimizing the Corporate Finance Function -- an integrated frameworkEach business is unique in terms of product, market, size, industry, management, culture, and financial strength. Companies need to tailor any generic model to its own unique needs and circumstances. Corporate financial management includes shareholder value maximization, risk management, financial planning, and performance assessment. Often these functions are viewed independently. For example, risk management is often performed by the treasury department on an ad hoc basis, and without an integrated planning and optimisation framework. The corporate finance function supports shareholder wealth creation by supporting corporate growth objectives with a disciplined financial foundation that is dynamically optimised with superior insights. The Modified Balanced Scorecard provides such a framework, which integrates economic value creation, enterprise-wide-risk management, and financial planning in an applied model. We discuss quantitative methods for optimisation of the corporate finance function, and assess qualitative aspects of real-world corporate finance that supports optimal decision-making, from a senior management perspective. Chapter 2: Shareholder Value Maximization Shareholder value is maximized when a company maximizes its growth opportunities by making superior financing and investing decisions, while optimally managing the operational risks of the business. In this chapter, we discuss the major shareholder valuation methods, and analytical techniques for value maximization. This includes minimization of earnings and cash flow volatility. We focus on the economic valuation aspects or EVA-type valuation techniques instead of accounting-based valuations, and cover both publicly listed as well as privately held companies. Chapter 3: Financial Policy Corporations usually have some guidelines they use for financial management, such as dividend payout amounts or payout ratios, debt-to-equity ratios, accounts receivable-to-revenue ratios and so on. As competition gets harder, simple rules-of-thumb or directionally right benchmarks are increasingly sub-optimal for corporate management purposes. We discuss and demonstrate how advanced quantitative techniques can be used to reach accurate optimising financial policy decisions, and how they can be modified over-time for dynamic optimisation. Beyond the analytical techniques, however, optimal financial policy-making involves superior insights into financial market dynamics, so that anticipated losses can be averted with appropriate risk management initiatives, and new market opportunities capitalized upon. Chapter 4: Risk Management Applied financial optimisation is a quantitative discipline, and nowhere is that more obvious than in the area of financial planning. In this chapter, we discuss how a financial planning model can be optimised using stochastic programming, incorporating uncertainty into the model, and how Monte-Carlo simulations can be performed on the financial planning model. In the real world, this can be done real-time with financial systems such as Hyperion, PeopleSoft etc. that provide real-time financial statements, and with softwares such as Crystal Ball and Risk Optimizer that can be used to estimate optimal levels of decision-variables. Chapter 5: Financial Reporting, Planning and Control This is a difficult topic, since risk, in general, is poorly understood and poorly estimated. Only some leading companies have integrated risk management systems in place that allow them to dynamically evaluate various financial risks such as exchange rate risk, interest rate risk, commodity price risk, and operational risks. We review the state-of-the-art risk estimation model: Value-at-Risk (VaR), and the latest integrated risk management model: Enterprise Wide Risk Management (EWRM). We show how optimal risk exposures can be derived, and how that is, in turn, a part of the broader corporate performance assessment model: the modified balanced scorecard. Chapter 6: Corporate Performance Management: the Balancing act In this chapter, a detailed financial planning model is presented that links the Balance Sheet, Income Statement, and Cash Flow Statement. The model estimates EVA and enterprise valuation, and VaR estimation of risk exposures, given certain assumptions and data-points. The financial model is then used to optimise financial policy. It also identifies areas where expenses can be streamlined, and financial controls implemented. We discuss the need for real-time financial systems with capabilities to disaggregate financial information. In light of the recent focus on financial data-integrity, we discuss how internal and external audits help that process. Appendix: Optimizing Corporate Performance The Balanced Scorecard is a powerful method to assess corporate performance with both financial and non-financial metrics in the scorecard. We discuss how corporate performance can be optimised with a 'modified' balanced scorecard. The modifications we incorporate into the traditional balanced scorecard concept are the EWRM risk management model, the EVA valuation model, SAVANT tax planning model, the risk-adjusted value maximisation model, and the linkage among the four areas of performance assessment: financial perspective, customer perspective, learning and growth perspective, and internal operations and process perspective.

Samir Asaf is currently Financial Director at AT&T Corp., USA, with more than a decade of international experience in corporate financial management and business operations. As a member of the Association of Financial Professionals, and the International Association of Business Leaders, he has an active interest in strategic corporate finance and business management.