This subject is only intended to be introductory for the purposes of the MBA, however, I think it went far deeper than that. The purpose was to show managers how they can interpret financial statements and it certainly has covered those issues.
This final module looks at the Future of Finance and Technology and what may change from traditional models.
Finance Beyond Financial Management
Financial management is essentially the core subject of finance. The MBA offers a number of other subjects that are finance related including:-
- Corporate Governance
- Very much focused on finance is the concept of risk management. Boards need to be able to rank risks and determine strategies to deal with them.
- Corporate Finance
- The time value of money surfaces again and looks at instruments for fund-raising such as shares, bonds and debt and how capital should be structured.
- Financial Markets and Institutions
- Looks at the different markets such as shares, futures and foreign exchange, who operates in those markets and the regulations surrounding them.
- Investment Management
- Investment management considers the risk vs return balance when building a portfolio. This subject also looks at managing risk with instruments such as hedging and options.
Integrated Reporting and ESG
Earlier in this subject, financial statements were examined in considerable depth. In recent times, a view is taking hold that financial statements are too historical and should include forward-looking reports. Integrated Reporting is “a framework embedding a range of information including organisational overview, strategy, performance, risk management and ESG orientation” (Bachoo 2021)and is being suggested as an alternative model that will provide a lot more information to assist in decision making.
ESG in finance
Environment, Social and Government (ESG) has also been covered in this subject and along with ethics are important for the sustainability of any organisation. Another term often used is Corporate Social Responsibility (CSR). The cost of capital is now truly reflecting these terms with plenty of evidence that projects considered unfriendly to the environment find it difficult to get finance. A good example in recent years has been the Adani coal project which has found it very difficult to obtain finance due to the nature of the project.
Some organisations still consider the implementation and improvement of ESG as a cost rather than an investment that improves both the value and sustainability of the organisation. As a result of this view, a Return on Sustainability Investment (ROSI) was put forward by Whelan and Douglas (2021). The model includes five steps which are:-
- Identify current sustainability challenges
- Identify related changes in operational or management practices
- Determine the resulting benefits
- Qualify the benefits
- Calculate the overall monetary value
Technology is rapidly evolving and there is increased demand for better management and processing of financial transactions. Financial technology is often described as Fintech which has been described as “the process of merging finance into technology. It will enable finance to be subsumed into all aspects of life, as an invisible and ubiquitous presence. So whether it’s for an individual—to save, invest, transfer or lend money—or for a corporation, the tools will be available in real-time and embedded into daily life.” (Phadke 2020, p. 129)
Furthermore, the digitalisation of finance continues to transform our world. Chandra, Plaschke and Seth (2018) commented on four ways in which digitalisation may impact finance in the future.
- Automation and robotics of all finance processes.
- Data visualisation for real-time financial reporting from multiple data sources.
- Advanced analytics for finance so that accelerated and accurate scenario analysis, forecasting and modelling can occur.
- Advanced analytics for business to provide for better tracking, prediction and identification of value and growth opportunities.
When you consider Fintech today you can see the rapidity of change in areas such as AI used for trading and big data. Cryptocurrency and blockchain are becoming mainstream and have wide appeal for their integrity and speed of transactions by reducing middle players.
The technology around payment processing is advancing at phenomenal rates as can be seen in the diagram below.
Investment and trading have always been about trying to predict the future. With the advent of big data and high-powered computers, huge amounts of data are stored and processed. AI software processes the data and uses algorithms to predict movements on which investors and traders can make decisions. The process is referred to as “algo trading”.
Dashboard reporting is also becoming more prevalent. With access to big data, reports can be built using better visuals than text-based reports. Examples can be seen with Google Analytics for example as shown in the image below.
The usual concerns about job losses abound, but people will become more specialised and become interpreters of these reports to make better informed decisions.
A valuable resource mentioned in the notes is Langmann, K 2021, How to Create a Dashboard in Excel – Step-by-Step (2022).
The site provides some interesting insights into the creation of dashboard reports in Excel, something I’ve never thought of before. It is always nice to learn of a new way to present data to others and provide options on how they view it. Some people like lists and tables and others like coloured graphs.
The second assessment builds on the first one and continues to use the same company. The assessment is based around providing a report on some proposed projects and financial decisions. It will be quite interesting I’m sure.
I have completed all the module studies and have two weeks up my sleeve for the assessment. Because I am now taking notes with every module using the Obsidian software, I am finding concepts and information sticks better. All the notes are in my own words which apparently is important to learning. Now I can focus exclusively on the writing of the assessment.References
- Course: 8006FMGT Financial Management 2022 Term 5, Topic: Week 7 The future of finance 2022, Aib.edu.au, viewed 30 September 2022, <https://learning.aib.edu.au/course/view.php?id=1265§ion=9>
- Bachoo, K 2021, ‘Are financial statements providing useful and relevant information, beyond compliance?‘, AIB Review, viewed 25 February 2022, https://www.aib.edu.au/blog/aib-review/are-financial-statements-providing-useful-and-relevant-information-beyond-compliance/.
- Whelan, T & Douglas, E 2021, ‘How to talk to your CFO about sustainability‘, Harvard Business Review, vol. 99, no. 1, pp. 86-93.
- Chandra, K, Plaschke, F & Seth, I 2018, Memo to the CFO: Get in front of digital finance—or get left back, McKinsey & Company, McKinsey & Company, viewed 30 September 2022, <https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back>.
- Deloitte & Perkinson, J 2018a, SME digital payments: New opportunities to optimise in the paytech revolution, viewed 25 February 2022, https://www2.deloitte.com/au/en/pages/financial-services/articles/sme-digital-payments.html
- Langmann, K 2021, How to create a dashboard in Excel: step-by-step, viewed 16 July 2021, https://spreadsheeto.com/dashboard-excel/.