Page 29 - Finanancial Management_2022

Value:

Its meaning

and measurement

To understand a business’s value, management accountants

need to become experts in intellectual capital and its impact
on financial performance.

By Paul Ashworth, FCMA, CGMA

inance needs to move beyond successful businesses are those that by finance teams. Approaches for bringing
its traditional, and essential, understand what drives value and what it into the quantitative measurement of
core accounting role to include diminishes it. There needs to be a value have made even less impact.
being the custodian of significant investment in research and Consequently, expenditure on intellectual
F organisational value, according skills development to improve all these capital is still largely treated, both in
to the 2018 CGMA report The Changing Role capabilities in finance professionals so financial reporting and in the minds of
and Mandate of Finance. they can take a lead role and partner the business managers, as a cost to be
However, there is a vast gap between business in the protection and growth of controlled rather than an investment in
meeting the demands of this extended organisational value. business assets.
mandate and the reality on the ground. Finance isn’t currently leading on Over my many years of enabling
How many businesses have a finance calculating that value; instead, external organisations to understand, manage, and
function that has the expertise and parties like market analysts, providers of optimise their value, I have seen limited
capability to identify, understand, funding, and external mergers and development in the tools and techniques
measure, and manage the various sources acquisitions advisers are taking the lead. used by finance professionals. This has
of value in their business? It should not be The use of valuation techniques by been accompanied by a general lack within
assumed finance will automatically be in-house finance teams in ongoing finance of recognition, prioritisation, and
made the custodians of value; they will business management is extremely investment in this activity.
need to earn the right to gain this limited, despite them having access to the There is no off-the-shelf, instant
responsibility. Currently, it seems that this richest sources of data on the actual and solution to calculate a precise, robust
is a role that many finance senior potential performance of the business. company valuation nor any tool to enable
management teams do not recognise or However, it is within the business itself effective value management. However,
understand, let alone champion. where there is the greatest opportunity to incremental improvements in this area
This is the first in a series of articles create or destroy value. can deliver significant benefits even whilst
that looks at how value is created, the way To be the custodians of organisational the capability is being developed.
it is measured, and the cost of capital. The value, finance teams must have expertise
second article will build on the first to look in both financial and intellectual capital.
at improving forecasting capability. This Various approaches, such as Kaplan and Editor’s note
enables finance to develop in-house Norton’s balanced scorecard, have been
expertise to be effective custodians of proposed to bring the consideration of This article is the first in a series
organisational value. intellectual capital into business looking at the role of the management
This is not a matter the profession can management, but we are not seeing any accountant in understanding,
ignore, as the potential for significant significant level of recognition, measuring, and managing value.
rewards or losses is enormous — consensus, or adoption of any approaches
FM-MAGAZINE.COM February 2022 I FM MAGAZINE I 27