📬 The fast track: What do CFOs look for in analysts?

Risky from Canada asked:

I would love to see a series on all things earnings! Particularly how to approach guidance. I’m in FP&A and support the process of coming up with guidance ranges, but it’s so much more than just a range. It helps our execs think about the stories they’ll tell analysts and investors and guiding correctly can ensure investors are optimistic, but staying within guardrails. An area I’d love to go deeper on, but resources are lacking!

Thanks, Risky.

I did cover guidance briefly a few months back, but you are right, this deserves the full CFO Secrets Playbook treatment at some point.

Here are a few words in the meantime:

Let’s start with the basics: guidance is the process of communicating ideas of expected future performance to investors.

Guidance moves the stock price of a company more than anything else. Why? Stock prices are just a consensus view of the expected future discounted cashflows of a business.

As views of those expected future cashflows (and the applicable discount rate) change, so does the price. And what is the most reliable source of expected future cash flows? Management estimates aka guidance (or at least they should be!)

So being robust, and consistent, about how you guide investors is important. It’s important for the stability of the stock price. And, of course, there is a ton of regulation around how ‘forward-looking statements’ should be used.

The stronger your forecast quality and FP&A processes, the more easily you can keep in control of your guidance.

Nothing destroys management credibility faster than consistently missing its own performance guidance. My preference is to issue fairly wide guidance, to give the business room from quarter to quarter for performance fluctuations.

I like to ensure my short-term guidance comes with a confidence level of about 95%. I figure the market will forgive me a miss once in every 20 quarters. That means being fairly prudent about the bottom end of the range.

Likewise, if you consistently beat your guidance, the market will start to ignore your guidance and write its own, which you don’t want.

So setting sensible ranges, backed by your internal processes is key.

There is a lot more to say here, so I’ll pick this up in a future long-form post.

Thanks for the question.

Zaccheus from Tuscon asked:

Hey Secret CFO - I thoroughly value your content! I just started as a Sr. Financial Analyst and wanted to ask what are some prominent skills you value in your FA's? Any certain skillsets that you could direct towards? Currently studying for CMA.

Thanks for the question Zaccheus. Whenever I hear Tucson I always think of Get Back by the Beatles. So I’m writing this with that soundtrack playing in my head.

A good analyst is first and foremost an absolute detail hound. You need to have an irritatingly high attention to detail and love pulling threads. The interesting answers never lie on the surface in the financials. They are always buried a couple of layers down.

So learning to ask the big questions using top-down analysis, and then using bottom-up analysis to answer them is a vital skill.

This means you need to be great at manipulating data. In my days as an FP&A analyst nearly 20 years ago, if you were good in Excel, pivot tables, and could do a little Visual Basic, you were a ninja.

That isn’t enough now.

Kids today are blowing my mind with what they can do. Using Python and other things I don’t really understand to make the data sing. You should get good at this and be leveraging AI tools to make you as efficient as possible if you aren’t already. There is a real edge for young finance pros who lean hard into this. Your goal should be to improve the quality of your insight, with as little manual manipulation as possible in the fastest possible time.

But it isn’t all about nerding out. You will hit a ceiling if you spend all day at a keyboard. You need to be able to tell stories with what you find. By converting insights into good stories you can bend an organization to take action based on what you find. Data visualization, commentary and communication skills are the key here. So work on those.

Great analysts ask great questions. Of themselves, of the business, of the data.

Congratulations on your new role, and good luck with your studies.

Kevin from Greenville, SC asked:

When I was younger, I used to imagine being a board member was all just lavish meals and golf clubs. Picking up a $500k annual check for the pleasure of a few talking shops every year.

But as I have grown I have learned there is a lot of involvement as fiduciaries; the committees, strategy, governance, etc. A few questions on all this:

• How frequently do board members meet per year?

• How much work are they (really) for BoD members, and how do their questions get generated?

• And how much work is managing a public company board for a CFO?

Thanks for the question, Kevin.

I once shared your same cynical view, but having seen how they work up close my opinion has changed.

Most public company boards meet 8 to 10 times per year. These tend to be full-day meetings. Some companies have quarterly two-day board meetings - but that hasn’t been my experience.

The preparation for an independent director is much more extensive than you’d think. Reading the board pack alone is a lot of work. And they do read it. Then the independent directors will often meet before the board meeting to compare notes/roast the CEO and CFO.

I would guess they are spending another 1 day per meeting preparing.

And that’s just the board meeting. Then there are the sub-committees: audit committees, compensation committees, etc. These are seriously admin-heavy sessions. So the chairs of these committees are taking on a lot of work.

And the fiduciary risk is real. Big companies are complicated. And therefore thorny ethical and moral dilemmas for the business always crop up.

It’s helpful as an exec to know that there is an independent BoD that will help think through these problems and allow them to focus on executing.

A good board will challenge the exec privately, support them publicly, and enable them to get the job done.

Often independent board members have several different roles across the same industry, meaning they can help you benchmark how other companies are thinking about common problems. Particularly things like legislation changes, etc.

Managing the board can be a A LOT of work for the CFO. It is the invisible part of the job that no one really sees. But it is not to be underestimated.

I’ve been thinking about taking on some additional board positions myself as a way of keeping a broader perspective. So if you can put me in touch with anyone you know paying $500k checks for a few games of golf per year, let me know…

Every week I’ll share a book I loved or found useful.

This one is for every CFO who says things like “rally the troops” and “in the trenches”:

A few of the biggest stories that every CFO is paying close attention to. This is the section you probably don’t want to see your name in.

Trump playing tariff brinksmanship

Who knows what the precise latest state of the impending trade war is when you read this. But I do know finance teams all over the world are groaning at the tariff admin bomb that is about to hit their desk … Stay strong brothers and sisters.

Apple is richer than ever thanks to high margins—and its new CFO intends to keep it that way

New Apple CFO Kevan Parekh had a better first earnings call than you. The iPhone maker reported a top and bottom line beat and a record gross margin of 46.9%. No pressure, Kev.

Fed holds rates steady in first meeting since Trump’s presidency

Much to the chagrin of investors in Fartcoin, Microstrategy, and other magic internet money things, Jerome Powell held interest rates steady last week. Although widely expected, it sends a clear message that the Fed is concerned about stubborn inflation… and you probably should be too.

ICYMI, some of my favorite finance/business social media posts from this week. In the words of Kendall Roy, “all bangers, all the time”:

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Let me know what you thought of today’s Mailbag. Just hit reply… I read every message.

And ICYMI, check out my interview with Siqi Chen, the founder of Runway. It was nice to hear he enjoyed it as much as I did:

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.