CFO RESPONSE TO COVIDCFO RESPONSE TO COVID-19

Against the backdrop of declining economic activity and a sudden stop to cash flows caused by the COVID-19 pandemic, CFOs & senior finance leaders need quick, peer-vetted perspectives to ensure they are taking the right actions for their companies, employees, shareholders and themselves.

CFO needs to assess underlying people and business risks and evaluate contingency options. The immediate response should be to stabilize the business during downturn by “Stress Test” the business plan under various scenarios and Communicate to your teams and external constituents

CASHFLOW MANAGEMENT

REDUCE CAPEX ON EXISTING INVESTMENTS

Some of the capital expenditure is designed to generate future growth, but some part, called maintenance capital expenditure, is to maintain existing assets. In post covid scenario, CFO will have to think of reduce its maintenance capex, and deferrer growth capex. CFO needs to maintain trade off between capital expenditure and life of assets.

REVIEWING COSTS IN LIGHT OF CHANGES IN REVENUE

You will need to update revenue estimates to reflect the current environment. For many companies there will be a need to urgently review the cost base to realign to lower revenue projections. CFOs may want to take a lead on cost-cutting measures, balancing short term financial commitments against long-term stability to determine which expenditures can be stopped or deferred. This requires a difficult balancing between the need for short term cost actions against keeping the business ready to take advantage of the likely growth opportunities post COVID-19.

CAPACITY UTILIZATION

Management needs to utilize maximum possible capacity for its products and services. Generally, in this pandemic situation, Market demand will be lower compare to Pre-Covid-19.

IMPROVEMENT IN WORKING CAPITAL CYCLE

By improving working capital cycle like reducing debtors collection period, maintaining optimal inventories, will increase in cash flow to company. It will also reduce your interest expense in case of credit facilities.

LIQUIDATE ASSETS

Every Company has some assets/investments that earn less than the cost of capital and sometimes even lose money. Whether a company should continue with an assets/investment, liquidate, or sell it depends upon which of the three is highest.

FINANCIAL REPORTING

Although the business activities of much of the world were on pause for more than a month, public companies/MNCs still have a fiduciary responsibility for financial reporting. And not just to fulfil legal requirements, accurate financial reporting is critical to drive decisions that run the business. The uncertainty and risk that companies are facing will have significant implications for preparers of financial statement

ICAI has created a Covid-19 FAQs on Ind-AS: The guidance offered in this document is applicable for annual financial statements prepared in Ind AS framework for the year ending March 31, 2020.

FINANCIAL MODELLING AND BUDGETING

The future is unclear. Will the pandemic tie us up for just a short period, or are we going to have health and economic disruption for years? “Staying the course” may be a grave mistake in this climate. Financial Modelling & Budgeting can be used to build prediction models and forecasts to evaluate the potential impact of the situation. To stay ahead of the uncertainties, action plans should be developed to position your team for shifting strategic and financial decisions based on varied situation/outcomes.

We are hope that this article will meet the objective and help both CFO and Finance department. To download PDF CLICK HERE