In the constant push and pull between what shareholders and activist investors want to know and what a company wants to disclose, an esoteric financial metric—return on invested capital—is gaining an odd amount of attention. At the same time, the Securities and Exchange Commission is putting novel earning measures under the microscope. Maneuvers that are outside of generally accepted accounting principles (GAAP) may paint a rosy picture for investors, but they’ll also garner more attention—and possible fines—from the commission.
4 need-to-know headlines
1. ROIC metric takes center stage
When General Motors Co. began touting a little-known financial metric last year, it was able to calm activist investors. But the century-old automaker was also a bit of a trendsetter, with more companies bragging about their return on invested capital. ROIC is a rough measure of how efficient a company is at earning cash flow from its invested capital. And new research shows that investors’ sudden focus on this esoteric financial metric may be warranted: A study of S&P 1500 constituents found that the larger the annual ROIC improvement, the more the stock performance climbed relative to the broad market. (via WSJ.com [log-in required] and ThinkAdvisor.com)
2. Puerto Rico’s financial crisis worsens
Earlier this week, Puerto Rico missed its May payment of $400 million in debt that had matured. It’s the largest default yet in the commonwealth’s history—and largest crisis ever in the municipal bond market. But lawmakers and economists have already turned their sights on July 1, when Puerto Rico and its agencies will owe $2 billion. Congress is scrambling to establish a federal oversight board to help manage the island’s debt restructuring, and Puerto Rico’s governor has announced he’s focusing on providing essential services to residents.
3. SEC to crack down on non-GAAP earnings
Now might be the time to rethink that novel reporting method. The Securities and Exchange Commission plans to increase scrutiny of companies that use non-GAAP measures to paint a sunnier outlook of their finances. The earning metrics that are expected to come under the microscope most often: adjusted earnings on a per-share basis and accelerated revenue recognition. (via WSJ.com [log-in required])
4. Team recognition can mean more than money
Looking to motivate your finance team to give it their all at work? You might want to rethink that salary bump. A new survey found that most employees value public recognition over monetary gains—whether that means a company wide email applauding their efforts on a recent project or a promotion with a new job title. “You can pull people aside and say thank you. People want in-person recognition from their boss or a personal email from the boss. You can do that without spending any money at all,” one vice president behind the survey explained. (via Bloomberg.com)
The stat: 13.8
The percentage of Fortune 500 companies that currently have women occupying the top finance job. That may not seem like cause to celebrate, but it’s a steady improvement from a decade before, when just 6.8% of top posts were filled by women, according to a new analysis by executive search firm Spencer Stuart. Nearly every year over the past decade has shown an increase in finance exec diversity, including both people of color and women. (via CFO.com)
Sound bite of the week
“There are two implications of combining a low level of readiness and a low level of awareness in relation to cybersecurity vulnerability: The first is that you’re inviting trouble; secondly, you may already be in trouble and not know it.” —cybercrimes commenter Ben Hammersley, in a new Nasdaq report. Evolving tech tools hold great promise for the financial industry, the report found, but finance teams haven’t yet embraced the culture of individual and corporate accountability that’s necessary for robust cybersecurity. (via Nasdaq.com)
4 Top Stories + 1 Key Statistic + 1 Industry Quote = The CFO 411
The CFO 411 is our weekly news roundup that brings you top headlines, data points, and sound bites to keep you in the know. Follow our updates on LinkedIn for more finance must-reads.