Skip to main content
main-content
Top

About this book

This book is a guide to how financial steering is designed, measured and implemented with a special focus on the energy industry. The authors offer an overview of and practical insights into the links between financial steering and accounting, and the temporary cycles of investment, divestment, return and loss, market highs and lows that form the framework of the entire energy industry across all value chain stages. The faster and the larger the cash cycles of investments and their returns, the greater not only the value created, but also the potential loss if the financial steering is not properly designed and managed. Value and value generation require an understanding of how value is both defined and measured in both and how the business/project economics model of a company works – financial steering provides this. Further, the book also discusses accounting topics such as impairments, new IFRS standards and the impact of accounting on key performance indicators of financial steering, which are associated with these investment decision valuations. The combination of accounting with the cash flow perspective provides a complete understanding of selected practical topics of financial steering which are explained in detail in a large number of examples and case studies.

The book is intended for a wide range of finance/controlling/treasury/accounting professionals and students. It is written in practical and simple terms to outline the financial steering concept and to bring it to life in daily work and in the decision making process for financial steering. All illustrated concepts are in the same manner relevant and applicable to all other asset-intense industry sectors and their financial steering processes.

Table of Contents

Frontmatter

Chapter 1. Introduction

Abstract
This book aims to provide selected examples for financial steering and to highlight the interaction with IFRS and its potential impact on the consolidated financial statements.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 2. Value Management for the Energy Industry: Financial KPIs and Ambition Level

Abstract
The guiding principle of value creation is activities which earn a return on capital that exceeds their cost of capital. A stable and predictable interaction between the perspectives is a prerequisite for sustainable value creation and steering of a company.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 3. WACCs and Hurdle Rate

Abstract
The WACC (weighted average cost of capital) and the hurdle rate determine key input parameters for investment decisions in energy companies. The WACC is necessary to calculate the required key financial KPIs—NPV , DPI and DPP—while the hurdle rate sets the minimum return requirement a project needs to achieve in order to reach approval and to subsequently contribute to achieving management’s ROACE target.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 4. Single Investment Decision

Abstract
Projects and growth initiatives are crucial for an ENERGY COMPANY. Due to the character of finite resources on a project basis, especially in upstream value chain element (each reservoir will be depleted at one stage in time, and the reserves have to be replaced on a continuous basis), single investment decisions represent the bricks of a solid and sustainable Value Management in practice. Each adequately taken investment decision will be a further contribution to an economic and profitable portfolio.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 5. Valuation

Abstract
The following chapter considers the main principles of valuation, from a company valuation perspective but also from a valuation perspective on assets and projects.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 6. Economic Portfolio Decisions

Abstract
In this chapter of the book, the focus is set on a company’s portfolio of projects. Until now it was important to set and describe the rules for investments of single projects. This is why each individual KPI has been described in detail and most importantly was challenged.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 7. Acquisitions: Impact on Consolidated Financial Statement

Abstract
Acquisitions are one of the most challenging processes for the finance/controlling department as a whole. First of all, the management has to analyse in which direction it is best for the group to move and select potential targets. If the management has a proper basis to move on, a supervisory board motion is key. One of the main challenges is how to provide the supervisory board with proper documentation and a basis for them to approve the next steps.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 8. Impairment of Assets (Fixed Assets and Goodwill)

Abstract
The aim of IAS 36—impairment of assets—is to make sure that an asset which will be not able to recover that amount is impaired. In this regard, IAS 36.1 makes clear that an asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. IAS 36.6 defines carrying amount as the amount at which an asset is recognised after deducting any accumulated depreciation. This concept is illustrated below:
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 9. Divestments

Abstract
Similar to acquisitions, which were described in Chap. 7 , divestments are also among the most challenging tasks for the finance/controlling department as a whole. Therefore, an overview of the potential impact of a divestment on the consolidated financial statement needs to be presented to the supervisory board, in order to approve a potential divestment. Based on that, the following chapters will provide an overview of the applicable IFRSs to account for divestments.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 10. New IFRS Standards

Abstract
For over more than 10 years, the IASB has developed the now endorsed new rules regarding:
  • Financial instruments (IFRS 9)
  • Revenue from contracts with customers (IFRS 15)
  • Leases (IFRS 16)
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Chapter 11. Fair Value Measurement

Abstract
The suggestions on how to measure a fair value of an asset or liability and what to disclose are set out in IFRS 13. In this regard, IFRS 13.2 defines that the fair value is a market-based measurement, not an entity-specific measurement. The objective of a fair value measurement is to estimate the price at which an orderly transaction, to sell the asset or to transfer the liability, would take place between market participants at the measurement date under current market conditions.
Martin Schwarzbichler, Christian Steiner, Daniel Turnheim

Backmatter

Additional information

Premium Partner

    Image Credits