The responsibilities of CFO include maintaining the financial stability of the organization, ensuring both short-term and long-term obligations such as adequate capital for operations and capital investment decision, and supporting potential expansion. We are also responsible for external financial reporting such as SEC filings, and federal, state and local tax compliance. “The CFO scorecard is a management tool that does more than collect and report key performance metrics… with the proper design, the scorecard reduces the time spent on discussing the issues and allots more time on solutions” (Toppazzini, 58).
For the scorecard, there are four major levels to which the CFO is evaluating on. The financial level of Hedrick Company includes the return on total assets ratios, return on common stockholders’ equity, the financial leverage, the quick ratio, the working capital and other ratios explained in this paragraph. We ask, “to succeed financially, how should we appear to our shareholders? ” (Saraiva, 55) We found that the return on total assets rose from 5. 1% to 6. %, meaning that assets this year are better employed by management; the return on common stockholders’ equity rose from 4. 94% to 9. 21%, indicating that our company is getting more returns this year on common stockholders’ equity; the financial leverage went from negative to positive over the year, which is a good sign because the company is getting more return on assets than what the company paid to creditors; working capital also increased from $1,060,000 to $1,300,000, which implies the company can pay its current liabilities more easily using only its current assets.
The company has better abilities to make interest payments this year because the times interest earned ratio rose from 3. 4 to 4. 33. The retained earnings had an increase 36. 4% over the year. However, the company also has problems with increasing liabilities, which had a 30. 2% increase over the year while stockholders’ equity had only a 5. 3% increase. The company had also another problem in that the percentage that total stockholders’ equity made up of the total stockholders’ equity and liabilities decreased as compared to last year.
The quick ratio decreased from 1. 22 to 0. 94; the current ratio dropped from 2. 15 to 2, which means the company has less ability to pay short term debts. In order to assess the problem with the liabilities much greater than the stockholders’ equity, the company needs to appear much more attractive to its shareholders. The next section of the scorecard is the learning and growth. For this part, we are concerned with the problem of “how will we sustain our ability to change and improve? ” (Svraiva, 55).
The CFO for Hedrick Company has been able to switch from investing in low return assets to much higher return assets which has projected the company into the positive financial leverage area. In order to keep the quick ratio down and be able to pay off current liabilities better, Hedrick Company should be funded less by banking loans and switch toward stockholder funding. This would keep liabilities down while still provided funding for the company, which then would increase the gap between assets and liabilities.
Following the learning and growth section is the process section. It answers the question “to satisfy our shareholders and customers, what business processes must we excel at? ” (Svraiva, 55). In order for the Hedrick Company to succeed against the competition, the CFO should excel in providing solid investment decisions that propel the company forward to expansion and provide support for future projects and components. This is used to evaluate the effectiveness of marketing efforts and used with the lead-to-sales metric to determine which marketing events the company should continue to invest in. ” (Toppazzini, 58) It would be helpful to the company if the CFO looked into the marketing returns on products to see if Hedrick company could market inventories efficiently in order to sell products faster therefore increasing profits that can be made in a period of time.
The CFO should also continue making investment decisions that get maximum returns on capital, like what seems to have been done this year. If this continues, Hedrick company should look into expanding and offering more stock options to customers and employees. This should decrease the need of financial support by loans and increase funding by stockholders. The last section of the scored card is associated with the customer. That means we need to appear financially stable and healthy to customers.
At the same time, the company should try to make their products easily available and efficiently delivered to customers. By providing reliable products and reliable services on which customers can trust and depend on, Hedrick Company will be able to pursue devoted customers to invest in stock options with the company. Customers are more willing to buy stock when they are provided with financial reports that are readily available and easily understood. By promoting Hedrick company to customers there will be more sources of funding.
Courtney from Study Moose
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