The field of finance deals with two basic decisions. They are the investment dec
ID: 416900 • Letter: T
Question
The field of finance deals with two basic decisions. They are the investment decision (to what projects or assets should funds be allocated) and the financing decisions (from where should the funds be obtained). How would you organize your areas of responsibility if you were the CFO of Amazon (departments and responsibilities, key positions, accountabilities, etc.) to deal with these responsibilities plus other activities including accounting, reporting, risk management, strategic initiatives, shareholder relations, etc.? An organization chart should be included to supplement the written analysis.
Explanation / Answer
The two basic decisions involved in any financial deals are
The key responsibility of the CFO of any organization is to supervise the business planning process.
For the CFO of Amazon the key responsibility would be how to increase the revenue of the organization and run the organization effectively.
Below is the detailed analysis of possible areas to be looked after by the CFO of Amazon-
Steps involved in planning are-
Assessing the situation
Developing the mission
Getting Ready
Setting Goals
Monitoring the process
Setting out the employees objectives
Working out the Plan
1. Purpose of the business plan 2. Highlights 3. Financial requirements.
A. Purpose of the business plan –
This section states the main purpose for developing and presenting your business plan. The basic objectives of any business plan are threefold:
• To ensure the viability of the business plan
• To raise new capital from outside investors or lenders or to inform and assure present investors or lenders about the progress of the business they have financed
• To establish the basis for developing a detailed plan of activities.
B. Main highlights-
The includes type of business, what are its product lines and services, what is its mission and what are the overall business objectives,corporate structure etc.
C. Financial requirements- If one of the main objectives of business plan is to mobilize additional funds, this section of the executive summary has to include the following:
• What is the total amount of funds required?
• In which currencies?
• For which purpose? (Working capital? Purchase of new machinery? Development of new products? Refurbishment of plant and equipment?)
• When do you need the funds?
• Are the forecasts based on optimistic, realistic or pessimistic assumptions?
• Borrowing. What type of borrowing is required, What guarantees or collateral are to be provided?
• Equity. What kind of capital stock is offered to investors? Preference shares/Common shares.What are the exit terms for the investors
4.Pricing Strategy-
The method of setting the pricing strategy is as below-
The purpose of your promotion and advertising campaign is to communicate information about your product or service to the market. Specific objectives are: • Make your product or service known. • Build up its image. Show benefits to users.
Financial planning is a key element of your business plan. It is as important for the lenders or investor. Financial planning is an integral part of your overall business management concept. All decisions and assumptions made will be reflected in the financial projections which are to be included in the business plan
The two most important features of your financial planning are:
• An indication of how profitable the business is expected to be in the future, and possible financial risks involved; •
A definition of additional funds required for developing any business, i.e. how much money is need, when will it be needed it and when will it be repaid.Hence,the financial statements presented in your business plan (historical and projected) are the principal tools that will be used to analyse the performance of the business.. A decision on whether the business will be funded or not, and if so on what terms and conditions, will depend on how attractive and convincing the projected financial results of your business are
Following is a list of major elements to be included in the financial part of your business plan: • Financial history/or start-up information; • Income statement projections/budget; • Balance sheet projections; • Cash flow projections; • Important financial ratios; • Request of funds and other supporting information. Some of the most important target readers may well be potential lenders or investors. If you are looking for outside financing to develop your business, there are many possible sources you can approach with your business plan.
The most important of these are the following:
• Commercial banks- Commercial banks provide loans to viable businesses on standard market terms and conditions. They are normally very risk-conscious and require adequate coverage by means of collateral.
• Private investment funds- Recent years have seen a rapid increase in the number of private venture capital funds that operate on a commercial basis. The objective of these funds is to make a profit, and they will scrutinize your business until they are convinced that they can get substantial return on their equity at a calculable risk. A particular advantage of such funds, as compared with bank loans, is that they can finance your business by placing equity without requiring collateral. On the other hand, they will expect a good share of the profit and will demand a control function in your business.
• Development funds. Such venture capital funds are established and supported primarily by Governments or governmental institutions and have a social and macroeconomic development objective.
• Private investors. Private investors are usually independent and wealthy individuals who are seeking opportunities to put money in promising businesses. Their incentive is to get a higher return on investment than on marketable securities or investing in a fund. Quite often they allocate a percentage of their fortunes for start-up or expansion projects. Placing money in diverse businesses reduces the overall risk in their investment portfolio.
Thus a CFO is the back bone of any organization.The organization chart for any CFO is as below-
The two basic decisions involved in any financial deals are
The key responsibility of the CFO of any organization is to supervise the business planning process.
For the CFO of Amazon the key responsibility would be how to increase the revenue of the organization and run the organization effectively.
Below is the detailed analysis of possible areas to be looked after by the CFO of Amazon-
Steps involved in planning are-
Assessing the situation
Developing the mission
Getting Ready
Setting Goals
Monitoring the process
Setting out the employees objectives
Working out the Plan
1. Purpose of the business plan 2. Highlights 3. Financial requirements.
A. Purpose of the business plan –
This section states the main purpose for developing and presenting your business plan. The basic objectives of any business plan are threefold:
• To ensure the viability of the business plan
• To raise new capital from outside investors or lenders or to inform and assure present investors or lenders about the progress of the business they have financed
• To establish the basis for developing a detailed plan of activities.
B. Main highlights-
The includes type of business, what are its product lines and services, what is its mission and what are the overall business objectives,corporate structure etc.
C. Financial requirements- If one of the main objectives of business plan is to mobilize additional funds, this section of the executive summary has to include the following:
• What is the total amount of funds required?
• In which currencies?
• For which purpose? (Working capital? Purchase of new machinery? Development of new products? Refurbishment of plant and equipment?)
• When do you need the funds?
• Are the forecasts based on optimistic, realistic or pessimistic assumptions?
• Borrowing. What type of borrowing is required, What guarantees or collateral are to be provided?
• Equity. What kind of capital stock is offered to investors? Preference shares/Common shares.What are the exit terms for the investors
4.Pricing Strategy-
The method of setting the pricing strategy is as below-
The purpose of your promotion and advertising campaign is to communicate information about your product or service to the market. Specific objectives are: • Make your product or service known. • Build up its image. Show benefits to users.
Financial planning is a key element of your business plan. It is as important for the lenders or investor. Financial planning is an integral part of your overall business management concept. All decisions and assumptions made will be reflected in the financial projections which are to be included in the business plan
The two most important features of your financial planning are:
• An indication of how profitable the business is expected to be in the future, and possible financial risks involved; •
A definition of additional funds required for developing any business, i.e. how much money is need, when will it be needed it and when will it be repaid.Hence,the financial statements presented in your business plan (historical and projected) are the principal tools that will be used to analyse the performance of the business.. A decision on whether the business will be funded or not, and if so on what terms and conditions, will depend on how attractive and convincing the projected financial results of your business are
Following is a list of major elements to be included in the financial part of your business plan: • Financial history/or start-up information; • Income statement projections/budget; • Balance sheet projections; • Cash flow projections; • Important financial ratios; • Request of funds and other supporting information. Some of the most important target readers may well be potential lenders or investors. If you are looking for outside financing to develop your business, there are many possible sources you can approach with your business plan.
The most important of these are the following:
• Commercial banks- Commercial banks provide loans to viable businesses on standard market terms and conditions. They are normally very risk-conscious and require adequate coverage by means of collateral.
• Private investment funds- Recent years have seen a rapid increase in the number of private venture capital funds that operate on a commercial basis. The objective of these funds is to make a profit, and they will scrutinize your business until they are convinced that they can get substantial return on their equity at a calculable risk. A particular advantage of such funds, as compared with bank loans, is that they can finance your business by placing equity without requiring collateral. On the other hand, they will expect a good share of the profit and will demand a control function in your business.
• Development funds. Such venture capital funds are established and supported primarily by Governments or governmental institutions and have a social and macroeconomic development objective.
• Private investors. Private investors are usually independent and wealthy individuals who are seeking opportunities to put money in promising businesses. Their incentive is to get a higher return on investment than on marketable securities or investing in a fund. Quite often they allocate a percentage of their fortunes for start-up or expansion projects. Placing money in diverse businesses reduces the overall risk in their investment portfolio.
Thus a CFO is the back bone of any organization.The organization chart for any CFO is as below-
Assessing the situation
Developing the mission
Getting Ready
Setting Goals
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