– Why this 4th book?
– The publisher recommended that I write a book on the core of my profession, namely corporate finance. This book is part of a new collection published by Ellipses “management in practice”. It is therefore short, technical and goes straight to the point for the reader interested in its practices. I wanted it “on the scale” of the SME to interest the maximum number of people who would be likely to practice corporate finance.
– What are the topics covered in this book?
– In this book, I address two of the five themes studied in corporate finance: financial analysis and financial management. In the first part, the reader learns to carry out a financial diagnosis on the basis of the annual accounts of a company by paying attention to the evolution of the turnover, the margins and the breakeven point, on the investment policy of the company, on its capacity to finance its needs, on its degree of liquidity and solvency before concluding on the profitability generated by the operation. The reader learns to determine whether the company is capable of creating value. In a second part, the reader is led to handle some financial mathematics! I try to be as pedagogical as possible to deepen the notions of financial theories and to understand the techniques of investment decisions as well as the different types of financing accessible for an SME.
– You say “creating value”, is this still relevant for companies that have experienced the Covid-19 crisis and are posting superb results in 2021?
– A company must perpetually create value. Value is created when a company generates more than the rate of return demanded by fund providers, shareholders and lenders. The value of the business goes up. A company that creates value has every chance of finding new financing: Who would want to invest in a company that is worth 300 today, 200 tomorrow and 100 the day after tomorrow? Nobody. This is how financing is obtained, which is intended to be remunerated, repaid if it is financial debt, bought back if it is shares. Then, be careful not to be short-sighted and confuse profit with value creation. A company can very well generate profits, if the cash flow it generates each year is less than the profitability required by the shareholder, the value of the company will fall. This is the big difference between book amounts and financial values. Finally, let’s be humble. The return to growth after a dark period as we have known is a normal phenomenon. It mechanically leads, with the flow of money in circulation, to another phenomenon: Inflation, and tomorrow, very likely, an increase in taxes.
– Aren’t stock market valuations delusional?
– Periods of stock market euphoria and optimism without any reason to justify them have always existed and will continue to appear. The market sometimes corrects slowly, and sometimes there are crashes. Over the past 7 days, uncertainty and the resumption of the epidemic have got the better of the CAC 40, leading to a 5% drop in the index. Sooner or later, values return to equilibrium.
– Since we are talking about finances, a subject worries the managers of VSEs and SMEs, particularly in Corsica, for companies that have been able to take out a loan guaranteed by the state. There is talk of a “wall of debt”. What do you think ?
– 6,882 companies benefited from more than one billion euros in PGEs in mid-November 2021. 6,057 loans (i.e. 88% of beneficiaries) were granted to VSEs, which benefited from 500 million euros (nearly 50% of the amount granted to all companies in Corsica). Accommodation, trade and construction activities were the biggest beneficiaries of the PGE. It is also some of these activities that have best cushioned the results in 2021. Of course, the most fragile companies before the crisis, which had the opportunity to obtain a loan and which did not benefit from the summer season because their activities did not lend themselves to it are very likely to be already trapped in financial difficulties. For the others, some have already planned to repay their PGE before maturity, to spread the credit over 5 years or even to restructure the debt. Moreover, there are no generalities. Some companies will have consumed the entire loan, others only part of it and still others will not even have touched it. What would seem more worrying to me is not the repayment of this loan, it would be the impossibility for our VSEs-SMEs to invest in new industrial tools, which would have the repercussion of condemning their growth for lack of new financial means. . Because if the debt brings saving liquidity to the company, it degrades at the same time its solvency. The risk taken by the shareholder, the owner, increases, and it becomes difficult to find new means of financing: The capital increase will not interest many people, because the prospects are still unclear and a bank will remain cautious , although I don’t know of any banking partners that drop all of their customers. Only the future economic context will be able to shed light on our outlook.
– So CFOs have a lot of work to do?
– More than ever ! A financial director has three missions: Finding sources of financing, seeking investments that create value and managing the company’s risks. An ambitious cocktail for all young people who want to get started in this profession at this time!
– Financial advice for all entrepreneurs?
– Manage your cash with a vision for tomorrow, the day after tomorrow, in 15 days, in 1 month, in 3 months! It is your only crystal ball to anticipate your tomorrows and sustain your business.
Analysis and financial management, Ellipses editions, 180p, available www.editions-ellipses.com