Scenario and goals
The new agreement on bank capital requirements, widely known as "Basel II," will be fully operational from 2007, but it has already begun to produce some effects in bank-firm relations. While major banks are gearing up to "measure" firms through their own "rating" models, firms are being called upon to improve the quantity and quality of information flows to the banking system. This will tend to concern both final and preventive information and both monetary aspects, typically derivable from financial statements, and qualitative aspects, which are difficult to trace in "official" business documents. Within this scenario, the intervention for Company R. aimed to: provide adequate "basic" training on the quantitative and qualitative variables subject to evaluation by banks; - delve into the methodologies and operational tools characteristic of the "Administration Finance and Control" area; and identify, within the company, the corrective actions that could most contribute to improving the effectiveness and efficiency of financial management and, therefore, of company management as a whole.
Process steps
The objectives identified were pursued through "fundamental analysis" and management consulting activities that resulted in the following steps:
- Quantitative "time" analysis of the company and evaluation of the income, equity and financial situation over the past five financial years;
- quantitative "spatial" analysis of the company by comparing it with its two main competitors; - qualitative analysis of the company and evidence of the main critical issues found;
- Preparation of a template for processing the income statement by product line.
The intervention focused on the construction of a model for reclassifying the income statement by product line, based on both accounting and non-accounting allocation criteria. The work made it possible to "objectively" analyze the profitability of individual product lines, providing management with some insights and support for future strategic business decisions.
Results
The check-up conducted revealed significant room for improvement in the area of management control. In particular, the need to equip the company with fundamental methodologies and tools for corporate control, such as:- Economic budgeting, was noted and shared with management;
- Management reclassification of the Income Statement by product line;
- Intra-annual management closures and analysis of deviations from budget.