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Financial Management Magazine April 2022

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Roshantha Perera
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31 views

Financial Management Magazine April 2022

Uploaded by

Roshantha Perera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
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Value: By Paul Ashworth, FCMA, CCMA nthe February 202 isuecf mt se expored value measurement techniques, the impact of intelectual capital andthe calculation ofa relevant costof capital Theartice conclude hat disounted-cash-lo {Dc valuatonshavethe potential toprovide the most justified and aecuratevalations. “Tis second arte consis how processes nd capably can he improved topviea robust orca hata then bused to provide the projections required fora0cF valuation. “The eatin of robust financial forecastscan be boiled dwn ive crt steps: |LAnalsehistri perfomance “determine he undedingdiversof financial perfomance, mapthe Inverelaionships, and quanti the ‘current ales of drivers, 2 Adentity projected future changes in the valves of drivers andthe extemal factor or stategicthemes ofthe busines that wl ese thoe changes, 3 Build or modify forest model fiom theundetyingdrivers, including theirinterelationshipsand projected future values todetermine forecast financaloutcomes under atic agreed senars. 4 Analysevariances between actal are Fn INecom Forcast performance man ongoing ‘bss forboth the undervngdvers andthe financial outcomes, Review hestaegictbemes, a necessary, and modify the forecast mmadel misimmperativethat finance develops neexpentse wo create acurate- as possible forecasts or theshortermbut 3 into telongtenn. The orcas so ‘eto provide appropriate insight that Infomsactionsto protect and increase businesvalue Forecasting challenge There areto0 many “known unknowns” ‘an “unknow unknowns” snes to expect perfectly accurate foreass, However forecasts should rele the "own knowns” abe wal justi, {insightful and actionable There cope ‘within mostbusinesses significantly Improve forecasting capably. Factors toconsier when preparing sucha forest include stategie alignment, managing predicabiiy, Setngthe appropriate ve of deta, ensuring negation of daa, and forecasting thcughto thelongtem. Businesses thatcan produce ete, moreinfonmative forecast can gan ‘Sgniscant competitive acbantage, rece businesrisk and hence improve value How to create a robust financial forecast Using a dynamic business forecast can enable the focus to be shifted to long-term value creation. Strategicaignment Improingundersanding of the vale creation levers avalsle tothe busines is needed The underlying drivers generally ‘elateto intelectual capital and will ‘imately ead finance outcomes that ¢etermine future nancial capa "Tomeasurethedevelopmentof Intellectual cptaland theconsequent ‘nancial outcomes ntractons betwee \ypesorateliectal pital ned tobe mapped and appropiate metrics ‘dente, Anefective approach isthat proposed by Kaplan and Noon, inwhich Snteacion are described ough a businesstrategi themes These hemes rovdejustication for proecte changes {nthe fate values of performance based on investments inllectual capital (sete exampe inthe chart ‘mle suategic Theme}. “The offen timebetween investment Incapablityand the ealstionot ‘nancial turn ads complexity tothe Editor's note Tis article i the secondin 9 two-part eaie ooking athe role ofthe management accountant in Understanding, meseuring, and ‘managing value Apri 2022 1 FM MAGAZINE 9 There is scope within most businesses to significantly improve forecasting capability. recognition of numerical relationships. ‘The processesofidentifyingant tracking thestategic themes ae cial in developingan improved understanding of ‘how neectal capital creates ale. 8) incoporatingallstatgicthemes within ‘one model, the synergistic benefits ‘thatcan come rom improvementsin mulkple avers are more easily identified and kept relisic. “Thevalue ofsomemeticsthat measure ‘theseationshipswilefetvely be

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