Ignacio Lezaun

English edition
2021

Fundamentals of Finance
Contents of the course

1. The role of the Chief Financial Officer

2. Statement of cash flows
3. Working capital management
4. Short-term finance instruments
5. The time value of money
6. Conclusions
 UNIT
1

1. Role of the Chief Financial

Officer (CFO)
OBJECTIVES UNIT
1

1. Background
2. CFO responsibilities
3. CFO and financial planning
4. Shift in role of CFO
5. Exercise
BP CFO Brian Gilvary‘s response to
COVID based on company knowledge UNIT
March 2020 1
Interview with Rich Veldran
Dun & Bradstreet on the CFO
UNIT
mandate 1
June 2014
Why is the role of the CFO so
UNIT
important 1

◼ Today's CFOs drive the direction and success of the organizations they
work in using their knowledge and understanding of the financial position
of the company
◼ Now they are also involved in the strategy definition for the company as
well as understanding of its performance

◼ The "older" tasks continue to be critical, but are now seen as minimum
requirements: these are taken for granted

◼ Examples of shifting role of CFO:

a. Identify risks related to different revenue streams

b. Understand market conditions for company’s global strategy
c. Assume accountability for high impact decisions
Walt Disney Company CFO
Christine McCarthy identifies UNIT
1
risk to revenue streams
September 2020
Volkswagen CFO Frank Witter
discusses market conditions for UNIT
1
global strategy
May 2019
Ryanair CFO Neil Sorahan
UNIT
demonstrates accountability 1
July 2020
The Deloitte model UNIT 1
 Treasury plan UNIT 1

 Objective of financial management and responsibility of the financial director:

guarantee the liquidity of the company

 Thus it is essential and necessary to have a treasury plan (i.e. a budget)

 A treasury plan:
o Is a budget for collections and payments 
o Allows you to anticipate treasury problems
o Facilitates liquidity management
o Can be done weekly, bi-weekly, etc.

 A treasury plan is not:

o An income and expense budget
o A sales budget
o A cost estimate
o An investment budget
 Exercise: Treasury plan UNIT 1
• Company XYZ presents the following balance sheet as of
December 31, 2020:
ASSETS 31/12/20 Net Equity and Liabilities 31/12/20
Intangible Assets 60,000.00 € Share capital 120,000.00 €
Tangible Assets 120,000.00 € Reservas 45,000.00 €
No Current Assets 180,000.00 € Income of the Year 25,000.00 €
Inventories 145,000.00 € Net Equity 190,000.00 €
Trade and other receivables 56,000.00 € Long term debt 150,000.00 €
Cash 111,950.00 € Non Current Liabilities 150,000.00 €
Current Assets 312,950.00 € Short term debt 75,000.00 €
Accounts payable 45,000.00 €
Short-term payable Public Authorities 32,950.00 €
Current Liabilities 152,950.00 €
Total Assets 492,950.00 € Total Equity and Liabilities 492,950.00 €

• The details of the balance items are as follows:

Trade and other receivables   Short-term payable Public Authorities  
November sales 24,500.00 € VAT 15,000.00 €
December sales 31,500.00 € IRPF (Personal income tax) 7,500.00 €
Total Trade and other Corporation tax 6,250.00 €
receivables 56,000.00 € Social Security 4,200.00 €
Total Short-term payable Public Authorities 32,950.00 €
 Exercise: Treasury plan UNIT 1

The details of the obligations with the Public Administration are as follows:

• VAT and personal income tax are paid in the month following the end of the
settlement period (the company files quarterly returns).
• The Corporation Tax is paid in the month of July of the following year.
• Social Security is paid in the month following the settlement month.
The average collection period for the company is two months. The expected sales
(excluding VAT) for the year 2021 by months are the following:

• The VAT to be passed on by the company is 21%.

  January February March April May June July August September October November December
Sales 25,000.00 € 32,500.00 € 36,800.00 € 42,000.00 € 52,500.00 € 54,000.00 € 65,200.00 € 22,500.00 € 56,700.00 € 49,000.00 € 55,000.00 € 68,500.00 €
 Exercise: Treasury plan UNIT 1

• The average term of payment to commercial suppliers is one

month and the payment of supplies and other expenses is in cash. The
details of purchases, supplies and other expenses for months of the year
2021 are expected to be the following:

  January February March April May June July August September October November December
17,500.00 28,000.00 15,000.00 24,000.00 30,000.00 52,000.00 30,000.00 28,000.00 35,000.00 40,000.00 12,000.00
Purchases € € € € 25,000.00 € € € € € € € €
Supplies 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 €
Other expenses 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 €

• The input VAT borne by the company is 21%.

Exercise: Treasury plan UNIT 1
The details of the payroll to the workers are as follows:

• The total gross monthly payroll is € 10,000.-

• The number of payments paid by the company is 14 (extra payroll in June and
December).
• The personal income tax that is withheld from workers is 15%.
• The social security that corresponds to the workers is 6% (it is calculated on the total
of payments, but it does not accrue in the extras).
• The social security that corresponds to the company is 30% (it is calculated on the
total of payments, but does not accrue in the extras).

The amortization table of the short-term bank loan is as follows:

  January February March April May June July August September October November December
Installment 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 €
The loan instalments include both the return of principal and the payment of
interest.
 Exercise: Treasury plan UNIT 1
TASK: Prepare the monthly treasury budget and profit and
loss account forecast for the year 2021 and draw conclusions

2021 January February March April May June July August September October November December
Opening balance

Receipts                        

Total receipts 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 €

Payments                        

PL Forecast 2021 2021

Sales
Purchases
Supplies and Other Expenses
Payroll
Social Security - Co.
Depreciation (*)  
Operational income
Interest  
Profit before taxes
Corporate tax  
Net Income