Financial Planning and Analysis and Performance Management
By Jack Alexander
CONTENTS
Preface xv
About the Website xix
1 Financial Planning & Analysis and Business
Performance Management 1
The Problem with Traditional Measurement Systems 1
Objectives of Financial Analysis and Performance
Management 3
Preview of the Book 6
Summary 9
Part One Fundamentals and Key FP&A Capabilities
2 Fundamentals of Finance 13
Basics of Accounting and Financial Statements 13
Financial Ratios and Indicators 19
Summary 42
3 Key Analytical Tools and Concepts 43
Basic Statistical Tools 43
The Business Model 59
Summary 69
4 Developing Predictive and Analytical Models 71
What Is a Financial Model? 71
Summary 81
Appendix: Illustrative Model 81
5 Building Analytical Capability 89
For the Individual 90
For the Organization 94
Summary 108
6 Communicating and Presenting Financial
Information 109
Laying the Foundation for Success 110
Developing Effective Presentations and Reports 117
Delivering the Presentation 120
Data Visualization and Presentation: A Picture Is Worth
a Thousand Words 121
Summary 134
Part Two Performance Management
7 Business Performance Management 137
What Is Business Performance Management? 138
Developing or Enhancing BPM in an Organization 144
Summary 155
8 Dashboards and Key Performance Indicators 157
Objectives of Dashboards and Key Performance Indicators 157
Selecting Appropriate Performance Measures and Key
Performance Indicators 160
Creating Performance Dashboards 166
Sample Dashboards for Selected Industries 175
Summary 175
9 Institutionalizing Performance Management 179
Gaining Traction 179
Integrating Business Performance Management with Other
Management Processes 183
Avoiding Common Mistakes 189
Summary 191
10 Measuring and DrivingWhat’s Important:
Innovation, Agility, and Human Capital 193
Innovation 194
Measuring and Driving Business Agility 204
Human Capital Management 214
HCM Dashboard 226
Summary 226
11 The External View: Benchmarking Performance
and Competitive Analysis 227
Analysis of Markets, Customers, and Competitors 228
Benchmarking to Evaluate Performance 232
Using Benchmarks to Set Enterprise Goals for Performance
and Value Creation 242
Summary 243
Part Three Business Projections and Plans
12 Business Projections and Plans: Introduction
and Best Practices 247
Overview of Business Planning and Projections 248
Best Practices in Projecting Future Financial Results 252
Summary 266
13 Budgets, Operating Plans, and Forecasts 267
The Budgeting Process 267
The Operating Plan 272
Business Forecasts and Outlooks 277
Summary 301
14 Long-Term Projections 303
Unique Challenges in Estimating Long-Term Performance 304
Applications of Long-Term Projections 305
Developing Long-Term Projections 307
Presentation of Long-Term Projections 319
Summary 325
Part Four Planning and Analysis for Critical Business
and Value Drivers
15 Revenue and Gross Margins 329
Revenue Growth: Key Drivers 330
Key Performance Measures: Revenue Growth 343
Revenue Dashboard 351
Gross Margins and Relative Pricing Strength 351
Measures of Relative Pricing Strength 356
Summary 359
16 Operating Expenses and Effectiveness 361
Drivers of Operating Effectiveness 362
Key Performance Indicators: Operating Effectiveness 365
Tools for Assessing and Improving Operating Effectivenss 382
Summary 387
17 Capital Management and Cash Flow:
Working Capital 389
Critical Success Factors 391
Operating Capital Management 393
Understanding the Dynamics of Operating Capital 394
Unleashing the Value Trapped in Operating Capital 396
Accounts Receivable 398
Key Performance Indicators for the Revenue Process and
Accounts Receivable 401
Inventories 410
Summary 420
18 Capital Management and Cash Flow:
Long-Term Assets 421
Capital Intensity 421
Tools for Improving the Management of Long-Term Capital 424
Projecting Capital Investments and Depreciation 428
Key Performance Indicators for Capital Intensity 431
Intangible Assets 433
Key Performance Indicators: Goodwill and Intangible Assets 434
Excess Cash Balances 436
Long-Term Capital Dashboard 437
Summary 439
19 Risk, Uncertainty, and the Cost of Capital 441
The Time Value of Money 441
The Cost of Capital 449
Performance Measures 458
Summary 461
Part Five Valuation and Capital Investment Decisions
20 Capital Investment Decisions: Introduction
and Key Concepts 465
The Capital Investment Process 466
Evaluating the Economic Merits of Capital Investments 469
Illustrations 478
Summary 484
21 Capital Investment Decisions: Advanced Topics 485
Dealing with Risk and Uncertainty in Capital Investment
Decisions 485
Presenting Capital Investment Decisions 499
Capital Budgeting and Rationing 500
Evaluating the Effectiveness of the Capital Investment
Decision Process 502
Summary 505
22 Business Valuation and Value Drivers 507
Estimating the Value of a Business by Discounting Future
Cash Flows 508
Estimating the Value of Firms by Using the Valuation
of Similar Firms: Multiples of Revenues, Earnings,
and Related Measures 517
Building Shareholder Value in a Multiples Framework 521
Integrated Valuation Summary for Roberts Manufacturing
Company 525
Value Drivers 528
Summary 533
23 Analysis of Mergers and Acquisitions 535
The Acquisition Challenge 535
Key Elements in Valuing an Acquisition 537
Methods and Metrics for Valuing an Acquisition 539
Common Mistakes in M&A 554
Best Practices and Critical Success Factors 557
Understanding Seller Best Practices 560
Key Performance Indicators for M&A 562
Dashboards for M&A 564
Summary 564
Part Six Summary
24 Summary and Where to from Here? 569
Key Takeaways 569
Where to from Here? 572
Glossary 575
Acknowledgments 585
About the Author 587
Index 589
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