FINANCIAL CONTROL OF THE

ENTERPRISE

Prof. PUTTU GURU PRASAD

FACULTY MEMBER
INC GUNTUR
pgp4149@gmail.com
Introduction to Financial
Controls
 Financial control ensures that the
funds are used in an appropriate
manner and that necessary
evidence is maintained for verifying
how the funds have been used.
 Financial controls provide the basis
for sound management and allow
the organization to succeed and
grow.
 The good character, competence,
diligence, and ethical behavior of
supervisors can create the desired
Components of Financial
control
 Financial polices and procedures
 Segregation of duties
 Book-keeping
 Reviewing and analyzing
 Controlling the assets employed
 Financial reporting systems
 Tools of Financial
Control
 Financial statements
 Financial ratios
 Economic value added
 Market value added
 Cash flow return on investment
 Strategic profit models
 Segment margin report
Financial statements
 - balance sheet
 - profit and loss account
 - cash flow statement
Financial ratios
 Liquidity ratios
 Leverage ratios
 Turnover ratios
 Profitability ratios
 Valuation ratios
Economic value added
(EVA)
 Developed by Stern Stewart & co.,
 It measures the true economic profit of
an organization in terms of wealth
creation for the share holders.
 EVA is:- Net operating profit after tax –
(capital * cost of capital)
Market value added (MVA)
 It is an extension of EVA.
 MVA is the difference between what
investors have invested to buy the
shares and what they can get back
by selling the shares at today’s
price
Cash flow return on
investment (CFROI)
 CFROI is a concept developed by
HOLT Value Associates.
 CFROI is adjusted for accounting
differences and inflation.
 CFROI is calculated by dividing
discounted future cash flows by
total capital assets.
 The net cash flow consist of
earnings and non cash charges like
amortization and depreciation
 Strategic profit model
(SPM)
 SPM considers return on net worth
(RONW) as the most informative and
significant measures of the profitability
of a business.
Profit margin Assets turnover =
* Return on assets

Financial
Return on assets * leverage
= Return on net worth
Segment margin report
 For effective decentralization the
performance of each responsibility
center or business unit has to be
evaluated, along with the
performance of the entire
organization
Controlling Assets
Employed In The Business
 Fixed assets
 Working capital
Fixed assets
 Fixed assets include land,
infrastructure , and machinery.
When investing in fixed assets,
organizations need to keep certain
things in mind, they are
 Usefulness of the asset
 Cost Vs Benefit
 Financial implications
 Buy or lease
Working capital
 The net working capital is the
current assets minus the current
liabilities. It is a measure of the
organization’s operational efficiency
an short-term financial health. A
positive working capital would mean
that the organization has sufficient
current assets to pay off its short-
term liabilities. Current assets
include cash or bank balances,
sundry creditors or receivables, and
inventory
Financial Information
Systems And Control
 Financial accounting system
 Sales accounting system
 Purchase accounting system
 Inventory accounting system
Roles in Financial Control
And Accountability
 Personnel in accounts and finance
Dep
 Internal auditors
 External auditors
 Management
 Board of directors
 employees