ADVANCED FINANCIAL DIAGNOSTICS for legal practitioners & their clients Dr Richard Allan Financial Management for Australian businesses
Aug 17, 2015
Dr Richard Allan
Applied Financial Diagnostics
0412 699 992www.findiag.com.au
for Australian businesses
1
APPLIED FINANCIAL DIAGNOSTICSInteractive Finance
OBJECTIVE
To enhance the value of enterprises by utilising commercial, contract and financial
methods to increase their income, reduce their cost of capital, equipment and
financing and to identify opportunities to minimise fees & margins.
An enterprise can
manage or engineer returns any time any pattern any currency any tax regime
using any instrument any contract any market
and move seamlessly between P&L Account Balance Sheet Off-Balance Sheet
in order to maximise its global value
AREAS FOR ADDING VALUE
Organisations from start-ups through listed companies, multinationals, charities and
government and their advisors, from agents & lawyers to administrators &
receivers.
Level 1: Board
Level 2: Strategic: Most commercial contracts – e.g. Capital raising, Project
Financing
Procurement, Marketing,
Investments, Remuneration, Tax
2
Level 3: Operational: Most financial transactions – e.g. Hedging, Liquidity
management
APPLIED FINANCIAL DIAGNOSTICS
Interactive Finance
Contracts & commercial pricing
financial , commercial & capital markets
sales & exports, procurement & purchases
evaluations, treasury, liquidity
treasury services
Financial cost minimisation
Expert Reports Foreign markets
diagnostics
global enterprise value
Contracts strategy Financial
diagnostics Identifying &
pricing embedded options
benchmarking
contract price diagnostics
Capital markets contracts
Foreign exchange Equipment contract Project Finance
Con-tract price Strategy
Capital Markets
EFM analyt-
ics
Treasury services
Enterprise financial management
3
APPLIED FINANCIAL DIAGNOSTICS
Interactive Finance
THE FIVE STAGE PROCESS
Enterprise Financial Management model
Board mandates: Functional currency, key objectives, core strategies, risk tolerances, enterprise drivers.
Identifying exposures, Internal offsets, real & embedded options, commercial adjustments, contract evaluations and risk diagnostics.
Actual exposures & sensitivities
Contract/ commercial solutions & strategies, financial alternatives, tolerances, contingencies, opportunities.
Determining contractual, commercial and financial pricing. Proactive establishment of key tiggers, windows of opportunity and limits.
Capital Investment & equity markets, currency & money markets, financial & commercial engineering, triggers, monitors, tollgates & controls.
BOARD
Exposure Identification
Strategies
Tactics
Implementation
4
APPLIED FINANCIAL DIAGNOSTICS PTY LTD
Interactive Finance
THE VALUE PIPELINE
To increase business profitability by ensuring contract terms & conditions, especially
regarding pricing and global financial issues, are properly identified and managed
VALUE ADDED
Once strategies are set, most value is added by executive management at
the contract stage.
COSTS & BENEFITS
Strategies Contracts Treasury
Strategies: Considerable value but possibility of positive and negative outcomes
Contracts: Only upside: either no change or range of value enhancements
Potential value added
Contracts TreasuryStrategies
Downside
Benefits
5
Treasury: Only upside: either no change or cost savings
APPLIED FINANCIAL DIAGNOSTICS Interactive Finance
THE VALUE PIPELINE
TWO METHODS FOR FINANCIAL MANAGEMENT: FINANCIAL AND LEGAL
Financial markets & instruments: Including embedded options requiring legal
assistance
Commercial contracts: Virtually all financial contracts can be replicated through
commercial contracts – one will always be superior from the client’s perspective.
Including embedded options requiring legal assistance
Our job is to ‘translate’ their language into yours – and the value differential drops out.
This adds transparency – the value proposition becomes crystal-clear.
Two values Enterprise Financial org. Benchmark
Two markets Commercial Financial One is superior
Two prices Present Future Timings
Two products Contract Instrument “Engineering”
Two economies Australia Offshore Inequalities
Two axis Enterprise Financial Long term value
Bottom line: It is usual to add
greater value during
commercial phase
FINANCIAL & COMMERCIAL ENGINEERING:Virtually all financial contracts can be replicated through commercial contracts
6
APPLIED FINANCIAL DIAGNOSTICSInteractive Finance
IDENTIFYING INITIAL POSITION – AND OFFSETS
A seven year overview of the underlying global price movements
EXAMPLE: SOME OPTIONS FOR IMPORTER’S GOALS
Four variations of the risk/return trade-off for importers: Revenue and
currency scenarios
Using either contractual or financial market instruments, actual or
embedded
Pre-con-tract
Post-con-tract
DealingJa
n-0
7
Jan-0
8
Dec-
08
Dec-
09
Dec-
10
Dec-
11
Dec-
12
0.6
0.7
0.8
0.9
1
1.1-10%-5%0%5%10%15%20%25%30%35%40%
7 year chart of Australian US Dollar
AUD/USD
GOOD Importer BAD Ex-porter
BAD Im-porter GOOD exporter
7
APPLIED FINANCIAL DIAGNOSTICS PTY LTD
Interactive Finance
VIRTUAL TREASURY
PRICING AND DIAGNOSTIC TOOLS & APPLICATIONS
Pricing tools and Diagnostics will be provided – some arithmetic skills are necessary
but no applications of formula or mathematics.
The course is designed for executives with legal skills to assist them to
apply finance and use “parafinancial” techniques to avoid danger & re-inforce
opportunities
Interactive Finance methodology includes a Virtual Treasury GPS
0.8000 0.8500 0.9000 0.9500 1.0000 1.0500 1.1000 90
95
100
105
110
115
120
125
130
Unhedged100% CoverFloorCollar
AUD/USD rate in 12 months time
Reve
nue
AUD
m
8
The Chines calligraphy for CRISIS: Danger + Opportunity
GUIDE DOGS, NOT GUARD DOGS
EFM strategy is designed to assist in increasing Enterprises’ margins and profitability
by identifying international pricing opportunities and reducing the costs of financing
capital equipment and financing (levels, fees, margins and costs).
APPLIED FINANCIAL DIAGNOSTICSInteractive Finance
VIRTUAL TREASURY©
Treasury Director is one of the tools we use within the Virtual Treasury to apply Interactive Finance
10
TWO METHODS FOR FINANCIAL MANAGEMENT: FINANCIAL AND LEGAL
Financial markets & instruments: Including embedded options requiring legal
assistance
Commercial contracts: Virtually all financial contracts can be replicated through
commercial contracts – one will always be superior from the client’s perspective.
Including embedded options requiring legal assistance
Our job is to ‘translate’ their language into yours – and the value differential drops out.
This adds transparency – the value proposition becomes crystal-clear.
Two values Enterprise/Client
Financial org. Benchmark
Two markets Commercial Financial Replication:One is superior
Two prices Present Future (NPV) NPVTime value
Two products Contract Financial instruments “Engineering”
Two markets Australia Global Volatility Inequalities
Business targets
Outright value Financial margins Long term value
Bottom line: It is usual to add
greater value during the
contract phase
Dr Richard AllanApplied Financial Diagnostics