Survey shows large firms OK with higher capital reserves for banks, even if it increases their own costs.

A majority of CFOs today appear to have little sympathy for bankers’ concerns over some of the potential reforms, such as requiring higher capital reserves, now being discussed both in Washington and in Basel, Switzerland. That’s where the Basel Committee on Banking Supervision is developing an “international framework for liquidity risk measurement, standards, and monitoring.”

In responding to the proposals, some of which would require banks to hold higher levels of liquid investments, the American Bankers Association said, “The cost of available credit could be expected to increase significantly.” The Association also warned that access to credit could tighten. more

A colleague of mine recently intrigued me with his belief that many businesses “can’t see the trees in the forest”! He contends that the “forest” in this case is the financial performance of the entire business which is displayed through its income, balance sheet, and cash flow statements. We would all agree that important “forest level” operating performance measures can be determined from these statements, including return on invested capital and cash flow return on investment. But what about how the “trees” (individual components such as business units, products, services, or customers) are performing?

Most businesses rely on “gross profit” (sales minus cost of goods sold) to measure product and customer performance. This simple profit measure ignores the product’s specific effect on general & administrative expenses or on the various balance sheet assets and liabilities. Using just gross profit, we can’t see the ROI (return on investment) on individual products, services, and customers. And there no doubt can be great difficulty and expense in distributing each account in the income statement and balance sheet to each product or service sold or to a customer.

Tom Welsh introduced me to his concept of Value Point Accounting (VPA) to address measuring performance at a more granular level. He believes that VPA is a low-cost way to get at ROI information and provide an advantage over competitors who manage by gross profit. more

I recently had the pleasure of meeting Dr. Chaman Jain, the editor of the Journal of Business Forecasting, at a conference in San Francisco.

Jain has been writing about business forecasting for years, and his publication regularly provides analyses of forecasting best practices.

Here’s a 2005 column from the journal that provides some soul-searching fodder for CFOs, financial planning & analysis directors, and other finance folks who occasionally encounter the need to address – or answer – the Big Question: Why do we forecast, anyway? more