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CFO Meaning – What is a Chief Financial Officer?

What Is a Chief Financial Officer (CFO)?

CFO MeaningCFO Meaning: A chief financial officer (CFO) is the senior executive responsible for managing the financial actions of a company. The CFO’s duties include tracking cash flow and financial planning as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions.

The chief financial officer of a company is the top-level financial officer.  He or she handles everything relating to cash flow and financial planning.  Although the role of a CFO can be rewarding, there are legal considerations that must be strictly followed.  CFOs oversee taxation issues for their companies.  Often, a CFO is the third-highest position in a company.  Aside from finance, they play a vital role in the company’s strategic initiatives.

CFO Meaning

The meaning of CFO is simply the initials that stand for the title Chief Financial Officer.  The CFO is the head of the finance department of an organization. He (or she) is responsible for overseeing financial operations, budgeting, and financial reporting.

How Chief Financial Officers Work

The CFO reports to the chief executive officer (CEO) but has significant input in the company’s affairs.  He or she will oversee investments, capital structure, and how the company manages its income and expenses. The CFO works with other senior managers and plays a key role in a company’s overall success.

For example, when the marketing department wants to launch a new campaign, the CFO may help to ensure the campaign is feasible or give input on the funds available for the campaign.  In the financial industry, a CFO is the highest-ranking financial position within a company.  The CFO may assist the CEO with forecasting, cost-benefit analysis, and obtaining funding for various initiatives. In the financial industry, a CFO is a highest-ranking position, and in other industries, it is usually the third-highest position in a company. A CFO can become a CEO, chief operating officer, or president of a company.  Source:investopedia

CFO Meaning vs CEO – What’s the Difference?

People outside the business world often get confused with the roles played by the CEO vs. CFO. The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) take on different but equally important responsibilities in an organization.  The CEO assumes the main role of overseeing the operations of the entire company.  This includes sales to administration. He holds the highest rank in the company and only reports to the board of directors. On the other hand, the CFO assumes the highest-ranked financial position in the company. The main focus of a CFO is the financial management of the business.  Normally, the CFO reports to the CEO.

CEO Meaning

The CEO is the most senior manager of an organization.  This individual oversees the activities of the whole organization. Chief executive officers manage different types of organizations.  These include government entities, non-profit organizations, and private and public corporations.  The CEO usually reports to the board of directors of the company.  The role is responsible for maximizing the entity’s value, including revenues, market share, share price, etc. In the government and non-profit sector, chief executive officers typically seek to achieve results.  These objectives relate to the mission of the organization.

CFO Meaning

The CFO is a senior manager within an organization.  But, with the primary role of overseeing the management of the company’s finances and financial activities.  This includes financial risk management, financial planning, financial reporting, recordkeeping, signing checks, and analysis of data. The CFO is comparable to a controller or treasurer.  The chief financial officer usually reports to the CEO, as well as the board of directors. They may also assume a seat on the board. They are the head of the company’s finance personnel and are also the key financial spokesperson. CFOs normally support the Chief Operating Officer (COO) on both tactical and strategic matters.  This cooperation concerns the cost-benefit analysis, securing funding, forecasting needs, and budget management.

The Benefits of Being a CFO

The CFO role has emerged.  It not only focuses on compliance and quality control to business planning and process changes.  Now, the role has emerged as a strategic partner to the CEO. As a result, the CFO plays a vital role in influencing company strategy.  The United States is an international financial hub.  Global economic growth increases employment growth in the U.S. financial industry. Companies continue to increase profits leading to a demand for qualified CFOs. The U.S. Bureau of Labor Statistics predicts the job outlook for financial managers to grow 7% between 2014 and 2024.

Chief Compliance Officer

The CFO must report accurate information because many decisions are based on the data they provide. Not only is the CFO responsible for managing the financial activities of a company.  Also, adhering to generally accepted accounting principles (GAAP).  These are established by the Securities and Exchange Commission (SEC) and other regulatory entities.  CFOs must also adhere to regulations such as the Sarbanes-Oxley Act.  It includes provisions such as fraud prevention and disclosing financial information.  Local, state, and federal governments hire CFOs to oversee taxation issues. Typically, the CFO is the liaison between local residents and elected officials on accounting and other spending matters. The CFO sets financial policy and is responsible for managing government funds.

Differences between Controller, Finance Director, and the CFO

The CFO is considered the highest finance position in an organization. Those in this position usually manage a team of controllers and supervise all financial personnel.

  • Finance directors — also called vice presidents of finance — have similar responsibilities to a CFO.  But, they are generally not part of the top executive team. Those in this position typically oversee the organization’s financial operations and report to the CFO.  Sometimes companies have one or the other, not both. Large companies typically employ CFOs, while small and midsize companies typically employ finance directors. In small businesses, the company’s finance director oversees all the financial operations and reports directly to the owner of the business.
  • Financial Controllers usually come from backgrounds in accounting or finance and start out as accountants.  The controller role is a natural progression from an accountant.  But, CFO is not necessarily a natural progression from the controller. Spending a certain number of years as a controller doesn’t necessarily lead to a promotion to CFO.  Although, it could lead to a promotion to finance director. The reason is because of the evolving skillset required to be a CFO.  The primary function of a controller is to maintain and operate the books, looking back at data that has already been generated.
  • Chief Financial Officer (CFO) – The primary function of a CFO is to look ahead.  To understand past financial performance in order to accurately predict and direct the organization’s financial future. Bridging the gap from the controller to CFO can prove difficult for many controllers.  It requires a strong set of business and leadership skills.

Up Next: Goodwill Impairment – What Is the Goodwill Impairment Test?

Goodwill impairment occurs when a company decides to pay more than book value to acquire an asset – then the value of that asset declines. The difference between the amount that the company paid for the asset and the book value of the asset is known as goodwill. The company has to adjust the book value of that goodwill down if it becomes impaired.

Goodwill impairment is an accounting charge.  Companies record it when the carrying value on financial statements exceeds goodwill’s fair value. In accounting, goodwill is recorded after a company acquires assets and liabilities.  But, at a price in excess of their identifiable net value.  When the fair value of goodwill drops below the previously recorded value from the time of the acquisition, and impairment is recorded.

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