27 November 2018

As a NED do you know your GROSS profit from your OPERATING profit?

As part of our partnership with BCKR, JM Finn offered a breakfast seminar to help attendees learn how to get to grips with a formal report and accounts.

BCKR work with lawyers to help them navigate the world of identifying and securing non-executive roles. First to present was Chief Executive of JM Finn, Steven Sussman who talked through his thoughts on what to consider when looking at NED positions and what the regulated firms he’s been involved with have sought from their own NEDs.  Steven provided a colourful and salutary reminder of the associated risks and outlined the following key points to consider when applying for NED roles:

  • As a NED you are at risk so you need to consider whether it’s worth it – your assets and reputation may be called to account
  • Time vs. money – it is not just about showing up to four board meetings a year; much more is required.  There are often committee meetings as well (and non-executives will generally be expected to sit on at least one other committee) and to do a good job, a lot of preparation is required (including reading 50-100 pages ahead of each meeting for even the smallest of committees – much more for the main board meetings).  So you need to really consider the time commitment.
  • Learning – you will need to get up to speed with the firm and the industry so there might be a lot to learn up front.
  • The financial state of firm – remember to look at this area of a firm when you consider a NED role e.g. how cash rich are they / are they profitable / is it a credible business?
  • As a NED you are responsible to the shareholders so you need to be able to be objective.

Steven was then followed by James Godrich, a research analyst at JM Finn, who gave an overview of what he looks for in a company prior to investing, covering important areas such as how to read the income statement, the balance sheet and the cash flow statement. 

James used his own experience of setting up a small business at university to help attendees understand the differences between gross profit, operating profit and net income and then translated this into reading a firm’s income statement.  James then moved on to explaining the balance sheet and cash flow statement, with a focus on looking at cash as a key indicator to the health of firm that one might be considering to join its board.

Wrapping up, James highlighted some examples of malfeasance where companies have historically hidden debt for example, moved working capital around and exaggerated the ‘exceptionals’ entry within a company’s reports.  All important areas to look at when considering signing up to become a non-executive director.

Understanding Finance

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