Five Myths (and Realities) about Zero-Based Budgeting

Companies often shy away from the method because they fear it or believe it means “budgeting from zero.” In reality, it’s a structured process that can build a culture of cost management.

Vijay Govindarajan, Anup Srivastava

A big thrust of managerial accounting is to determine the costs of production, which are broken into subcategories, such as variable, fixed, overheads, direct, or indirect costs. Managerial accounting then determines the optimal mix of resources to lower production costs. Those concepts become less and less applicable as digital companies operate largely on a fixed cost structure with very few variable costs. A future challenge … [ Read more ]

Where a Firm’s Value Truly Lies

A new approach to uncovering the sum of all the parts of a modern firm.

If Cash Is King, Why Doesn’t It Rule?

With tax rules changing and interest rates set to rise globally, companies need to organize their operations around a new value equation.

The Marriage of Tax and Strategy

Make a commitment to the function that knows your company best.

Finding a Better Way to Value Companies in the Digital World

In a world rapidly switching to digital business models, the old ways of classifying industries and measuring business performances do not suffice anymore. So argue Barry Libert, CEO of OpenMatters, Megan Beck, the chief insights officer, and Wharton marketing professor Jerry (Yoram) Wind. In this opinion piece, they say it’s time to upgrade Standard & Poor’s Global Industry Classification Standard (GICS) and GAAP (Generally Accepted … [ Read more ]

Steven Sinofsky

[Mike Maples] spent many years watching people fight to move expenses to other teams, claim revenue for their own team, or even fight against the price of shared corporate services. This “allocation” dynamic is extreme “finance gymnastics” that grows exponentially complex as the business cross-dependencies grow. Ultimately the meaning of P&Ls derived from allocations becomes the undoing of most rational thought in an organization — hiring, investing, … [ Read more ]

Steven Sinofsky

Going back to the history of accounting, a P&L is a tool used by executives to inform decisions around resource and capital allocation, pricing, etc. In a large organization, it is very difficult to assign revenue and costs to a specific unit within a company and even more difficult to offer true span of control or accountability to a unit leader. The creation of P&Ls … [ Read more ]

Charles Horngren

Decision-making is the ultimate reason why accountants and finance people exist. The way to judge the quality of an accounting or performance management system is to determine whether it is spurring quality decision-making.

Christopher Bartlett

Accounting is about understanding and interpreting and getting behind the numbers, and how you use the numbers to really understand the business. Management is all about complexity and diversity and dynamism.

Class In Session

Steve Player speaks to legendary costing professor Dr. Charles Horngren of Stanford University, whose market-leading textbook, Cost Accounting: A Managerial Emphasis (first issued in 1962 and now in its 13th edition from Prentice Hall), has been used to train more CFOs and other finance executives than any other. In this rapidly changing world, Dr. Horngren provides sage advice on what remains timeless and important in … [ Read more ]

ABC: The Next Generation

Many companies that look into changing their costing systems find that they are making mistakes, both large and small, that stem from the systemic failure of their cost-accounting systems to deliver actionable economic intelligence that they can use to optimize production, planning, and sales incentive systems (to name three of the most important areas for improvement). If your company makes anything, and particularly if you … [ Read more ]

Building a Better Income Statement

If neither companies nor investors find GAAP reported earnings useful, it’s clearly time for a new approach.

Fred Reichheld and Rob Markey

If a hard asset like a machine is somehow impaired, a CFO must reflect the asset’s lower value on the books. The same applies to a contract or piece of software. If customers, on the other hand, suddenly decide they hate doing business with your company, this asset is clearly impaired—but the CFO may not even know about it until too late. And even if … [ Read more ]

“Fidel,” Sam Mendes, and Phil Jackson

There are many things you can do to avoid failing as a manager. You can set clear expectations. You can highlight the underlying purpose of people’s work. You can correct people when they do something wrong. And you can praise people when they do something right. If you do all these things often and well, you will not fail as a manager.

However, neither will you … [ Read more ]

Of CEOs and Accounting

It’s not that big of a stretch to say that many CEOs – too many, perhaps – would rather learn how to hit a three wood than move up the knowledge curve on accounting. But just like you can’t ask your caddy or anyone else to hit a three wood for you, you cannot – or at least should not – ask your CFO to … [ Read more ]

12 Ways Your Financial Statements Tell Lenders the Wrong Story

Your financial statements may not make the bestseller list, but they do tell an intriguing story—at least to a banker. Unfortunately, the tale they tell may be misleading. Since finance is no place for fiction, you need to make sure your statements tell the truth, the whole truth, and nothing but the truth.

To do that, the first thing you need to know is that … [ Read more ]

Peter Drucker

After 40 years of preaching, we have convinced everybody that cash flow is more important than profit. (Everybody except Wall Street, and Wall Street will never learn that lesson. There are no slower learners than securities analysts. I can testify to that; I was one. So they and the companies they promote still run into credit crunches, which kill about four of every 10 new … [ Read more ]

Want to Really Know How a Stock is Doing? Don’t Just Look at the Company’s Bottom Line

Skittish investors will not be surprised to learn that the bottom line of a company’s income statement fails to tell the whole story. New research by Jan Barton, an associate professor of accounting at Emory University’s Goizueta Business School, suggests that subtotals near the center of the income statement, such as operating income, have a much stronger association with contemporaneous stock returns than do the … [ Read more ]