Above-the-Line Imperatives: Managing Growth, Risk, and Profitability

By Achyuta Nidadavolu CPA, CA

A successful CEO recently mentioned that while he is interested in below-the-line financial information, he is more concerned with and focused on above-the-line activities in financial reporting. This short statement, befitting to a CEO, has the power to encompass a whole gamut of issues, goals, and strategies.

Often, finance managers and CPAs focus on below-the-line results. Finance managers devote significant time and energy to analyzing the variances that led to the bottom line. Such analysis often overlooks the interconnectivity and relevance of above-the-line activity.

Having said this, there are a number of competing realities finance managers are facing in this dynamic and competitive business environment, such as:

  • More time spent on recordkeeping and developing reports, with no time to elicit and understand the needs of financial statements users;
  • Not enough overall understanding of the business, instead closely focusing financial activity on compliance and deadlines;
  • Not enough emphasis on developing a platform to nurture proactive business-building ideas;
  • Excessive concern about disrupting a traditional long-term business model and not thinking out-of-the-box;
  • Staying within one’s own comfort zone of endearing accountability that translates into less empowerment.

Finance managers have immense responsibility to support the chief executive officer, the board of directors, and functional management by providing decision-useful analysis.

In fact, heavy reliance is placed on the information supplied by the finance department, primarily because the data is captured, documented, and maintained on the basis of established standards, rules, and regulations. They are also aware that this same information is supplied to various outside authorities, in different formats and variations.

Executives need and rely upon this information for several critical purposes, including:

  • Developing analytics to understand, predict, and manage the customer base;
  • Converting analysis into predictive solutions that enhance revenue growth or contain costs;
  • Generating greater visibility across the entire value chain framework;
  • Accurately assessing the rationale and impact of promotional/incremental spending;
  • Creating growth in annuity-type businesses for predictable, profitable, and sustainable revenue streams.

Business decisions are made constantly on the basis of several above-the-line components. In broader terms, we could consider the following classes of income statement equitably, if not equally, important in making business decisions:

  • Revenue;
  • Cost of goods sold or services rendered;
  • Administrative overheads;
  • Selling overheads;
  • Depreciation and amortization;
  • Passive income and expenses;
  • Certain exceptional and extraordinary items; and
  • Taxes.

Finance managers play a crucial role in providing timely, relevant, accurate, substantive, comprehensive, and useful information to both C-level and functional managers. This information can provide a sustainable competitive advantage to the organization.

I classify this decision support information into three categories:

A. Strategic;

B. Tactical; and

C. Compliance.

A. Strategic support from finance managers maintains focus on the big picture. The name of the game is to “think globally and act locally.” Here is where the finance manager can develop an information platform to nurture proactive business-building ideas. The output will focus users’ attention on relevant, quality information. Some areas to consider are:

  • Growth: Incremental growth in revenue and profitability translates into enhanced shareholder value.
  • Merger and acquisition (M&A) and divestiture strategy: Identifies both the vertical and lateral synergies in M&A activities. Provides a heads-up of the risks and opportunities in business integrations, extrications, and transitions.
  • Sales and marketing development: Identifies and meaningfully addresses the problems and opportunities within various customer segments for improved value propositions.
  • Pricing strategy: Delivers maximum business value by ensuring that there is an optimum balance between the entity’s long-term, consistent profitability and customer retention.
  • Business model paradigm shift: Identifies components of sustainable growth, profitability, and good business practices by differentiating the entity from what everyone else is doing.
  • Social equity: Communicates information that verifies and validates that the fundamental drivers of business preserve efficacy and grow with the social goodwill in the society as a whole.

B. Tactical needs must be met by the finance managers on the premise that business dynamics change constantly. It is the finance managers’ responsibility to ensure that the users have the correct information for meeting their marketplace challenges. Business intelligence mainly flows from tactical dashboarding and ad hoc or real-time internal reports. Finance managers can impress users by providing the tactical information on the following basis:

  • Regular operating and financial performance updates; daily, monthly, quarterly reports, or ad hoc/real-time user interface.
  • Analysis of operating and financial activities and their performance, compared with meaningful metrics and scorecards.
  • Online and real-time information to the users, such as account-level actuals, forecasts, budgets, variances, etc.

C. Compliance is the true motivator for all finance folks, who begin their days concerned with the impending deadlines and schedules. Compliance includes statutory filings (e.g., 10Ks and 10Qs) and regulatory filings (e.g., Department of Commerce reports, local, state and federal taxes, and SOX requirements).

High-value financial reporting blends strategic, tactical, and compliance necessary information. Many finance managers focus on compliance as the core of his or her performance. While meeting these filing requirements is an absolute necessity, such integration will enhance the efficiency of the financial reporting function.


Strategic and tactical business decisions are made primarily and frequently on the basis of above-the-line components. Well-managed companies have always sought to maintain quality financial and operating information without involving excessive costs and complexities.

So much of business intelligence is embedded in the financial and accounting database; senior executives constantly want to mold that data into different dynamics in order to compare them with different periods and with outside peer organizations.

Accurate and timely information in the hands of decision-makers provides a sustainably competitive advantage. In addition, strategic financial information is required to build a need-based integrated framework of decision-supportive information, thereby leveraging relevant revenue/cost, industry, and enterprise models.

With the advancements in client/server systems comes a wealth of financial information continuously captured by the entity, which can be made available at the fingertips of executives and line managers. The challenge is to selectively identify the business-critical information and prepare decision-useful management reports to quench the companywide thirst for intelligent information and, at the same time, comply with both external and internal reporting needs.

Achyuta Nidadavolu CPA, CA, is a principal in Aspen Consulting in Trumbull, Connecticut. An expert in enterprise-wide risk and opportunity assessment, Nidadavolu specializes in business advisory dynamics and U.S. GAAP/IFRS integration. He can be reached at ANidadavolu@Charter.net.