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Ex-CFO, accountant admit to Ponzi role
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Time to rethink capex Print E-mail

With companies holding cash rather than putting it into property, plant and equipment, it's becoming more important that they prioritize their opportunities for deploying it. If they fail to exploit them, sooner or later investors will start demanding their capital back. And the more cash on the balance sheet swells, as it has of late, the sooner that time will be.

Sam Silvers, author, Finance Transformation: Think a la carte, not overhaul, and Deloitte Finance Transformation Practice Leader, offers some fresh insight into how to get enough out of capital investment to be worth the risk.

"It seems easy to prioritize capital investments, but it's an area where finance struggles," Silvers explained to CFOZone.

One reason is that finance's traditional approach to capex is too narrow, says Silvers.

Capital investment involves not only equipment and facility investment, he emphasizes, but also channel development and entry into new markets.

To take that into consideration, Silvers recommends an approach that identifies and quantifies project interdependencies up front. That can help identify synergies among different investments that will improve their returns. As an example, he cited separate investments in a new product and in a new market. "Those are two unique investments, yet often have interdependencies, such as the product being sold in the market," Silvers said.

Silvers also recommends that treasury departments become more involved in the process by developing internal as well as external performance metrics and helping the business understand them. That's especially true of internal metrics based on cash such as the cash conversion cycle and cash return on investment, as opposed to the capitalization of the assets.

"Most CFOs grew up as accountants and focused on P&L, cash is a different mindset," Silvers observed.

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