WELCOME AND COURSE INTRODUCTION
Our course begins by reinforcing the need for financial acumen for managers from all functional areas. A solid set of financial skills provides managers with tools and techniques to improve their analyses and decision-making. Better decisions lead to lead to greater success allowing organizations to win. A lack of comfort or familiarity with the language of accounting and finance can often be a career-limiting factor. The goal of the course is to introduce you to important tools of finance and accounting, and to help you build the confidence to ask really good questions of the financial experts in your organization.
FINANCIAL REPORTING: TELLING YOUR STORY
Financial accounting - balance sheets, income statements, and statements of cash flows - is the information prepared by management to describe the company to external groups like shareholders and creditors. Managers are often told to think like owners, so it is important to understand the information provided to owners to describe the organization. It’s critical to understand how your actions and decisions as a manager in your organization will ultimately be reflected in these reports and impact the way your organization will be viewed by these external groups.
ANALYZING FINANCIAL REPORTS: WHAT TO LOOK FOR AND WHY
Financial statements are intended to tell a story about an organization, but how do you read that story? Where does someone start in analyzing this information to create a financial lens through which the organization is viewed? In this section, we examine how the information provided in financial statements can be used to create key ratios or indicators that describe the financial state of the organization. These indicators can then be used to analyze trends to see where the company is headed and to compare with benchmarks such as industry norms to see how the organization compares with its competitors.
DETERMINING COSTS: IT’S NOT AS SIMPLE AS IT SOUNDS
While financial accounting is the information prepared to describe the firm to people externally, management accounting is the information prepared for internal decision-making by managers. A great deal of that decision-making needs and uses information about an organization’s costs for producing a good or service. In this section we look at two basic components of costs - direct costs and overheads - and examine how these are attached to goods and services to calculate their costs. This is important to understand because it is the process used to produce the cost information provided to managers.
THE BUDGET PROCESS: MAKING IT WORK
Almost everyone groans when they think about the annual budgeting process. There are really two reasons while this process ends up being a ritual no one enjoys. First, the budgeting process often ends-up being more like a game in too many organizations: managers predict results lower than they expect and ask for more resources than they know they will receive; senior management counters with expected results greater than can be achieved and with fewer resources than are necessary for those results. Second, as a tool, a budget often paints a static picture of the future with one specific level of sales or production. Even after the gaming nature of budgeting is removed, despite all of the insight and careful analysis brought to the budgeting process it is unlikely that the actual results will be exactly as predicted. In order for a budget to be useful in understand how changes in activity level should translate to the bottom line it is necessary to produce budgets on a flexible basis and separate costs into their fixed and variable components. With these two changes in place, budgets can change from painful rituals into strategic resource allocation tools.
MEASURING THE FUTURE: THE MYSTERIES OF CAPITAL BUDGETING
Investing a significant amount of the capital a firm has raised into a new project or acquisition is always an important, strategic decision. In fact, it is often so important that senior management may be betting the company on these kinds of decisions. Obviously, such complex decisions bring in lots of information and are considered in many different dimensions including the financial analysis of these capital investments. This financial lens typically uses some well-established tools to examine the forecasts of the future cash flows associated with capital investments. This section covers the three most widely used of these tools: payback, internal rate or return, and net present value.
STRATEGY AND CAPITAL BUDGETING: USING AND EXTENDING THE INFORMATION
Capital budgeting tools, like most financial analyses, appear to provide concrete and precise information because they are numerical in nature. But don’t let the appearance of precision suggested by these tools cloud the fact that they are simply the financial representation of (educated) guesses about the future. Despite the uncertainty involved with any form of forecasting future results, the process of producing capital budgets can provide improved understanding of the variables and assumptions that get included in these decisions. Our focus in this section is on gaining a better understanding of how the organization creates value through its strategy is possible as part of a well-designed capital budgeting process.
The final section of our course presents a recap of key points we’ve covered and provides guidance on what managers must do to continue leveraging the tools of finance and accounting to make better business decisions.