The goal of financial management of maximizing shareholder wealth can be assessed through a variety of measurements. What this variety of measurements may not assess is potential problems in relationships between businesses and stakeholders. One way to assess potential problems with these relationships is to look for fractures. This article describes how to identify fractures through FP&A within three elements on the balance sheet.
Machines thinking on their own present a number of anxieties in the workplace. Perhaps the most significant anxiety is the loss of work. Loss of work within factories is more than an anxiety, it is a reality.
One of the more important qualities of FP&A practitioners is curiosity. Curiosity, a strong desire to know or learn something, is affected by the types of questions asked. It is the types of questions that determine how much FP&A practitioners want to know or learn. One type of question is “what.” The purpose of asking “what” is to acquire information. Acquiring information can be in the form of financial numbers like revenues, expenses, and cash flows. Acquiring information can be in the form of non-financial numbers like the amount of time companies receive or make payments. Acquiring information can be in the form of qualitative data like comments from customers, names of products, or types of services provided. Asking “what” helps FP&A practitioners know about the environments where they work but knowing is not enough. FP&A practitioners need to ask questions that help them learn about the environments where they work.
FP&A practitioners rely on raw materials, i.e. data, to conduct their work. In order to conduct their work a variety of data types should be utilized. There are three types of data that FP&A practitioners should utilize. The first type of data is financial numbers. Financial numbers must be utilized due to the goal of FP&A. The goal of FP&A is to assess whether wealth is or will be created based on decisions within businesses. These decisions can be assessed through elements within financial statements. Income, stockholders’ equity, and cash are the elements most commonly used to assess wealth. These elements are expressed through financial numbers so it seems foolish to describe their importance but it is necessary to do so. This is due to the role of other data types.
As a word fractal is not frequently used in conversation. As a concept fractal is frequently present in our lives. Its presence is evident in nature. The concept of a fractal was established in large part by the work of Benoit Mandelbrot, a mathematician whose work covered a wide and diverse number of disciplines. Perhaps the most notable example of how he established the concept of a fractal was his study of England’s coastlines.
Framing is how situations are presented to people. How situations are presented affect the decisions that people make. Framing has a role in the work of FP&A practitioners. FP&A practitioners can work through narrow frames. Narrow frames can appear on income statements through revenues from specific products, executive salaries, and equipment depreciation.
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Financial Planning is seen as a service however seeing Financial Planning as such limits its value-added capabilities. Financial Planning creates products that help people maximize wealth. There are two products created from Financial Planning for this task.
Making assessments is one part of an FP&A practitioner’s work. The purpose of assessments is to stimulate learning about the relationship between processes and outcomes. How can an FP&A practitioner give meaning to assessments?
Making projections is one part of an FP&A practitioner’s work. The purpose of projections is to establish expectations on outcomes. How can an FP&A practitioner give meaning to projections?
Numbers may be the prime element within FP&A. FP&A is relied upon to provide numbers like operating income, net cash flows, and earnings per share. Do numbers like these and others mean anything?