Finance for Non-Financial Managers Cartoon
It’s not just financial and accountancy professionals who deal with spreadsheets, and figures, and the financial side of business. It’s highly likely that, as a leader at any level, you’re going to have to analyze figures at some point and try to measure financial performance. There are many different ways to measure financial performance, but ideally these should be looked at in aggregation. Line items such as revenue from operations, operating income, profit or net cash flow, as well as total unit sales can be used. In addition, we may choose to focus on financial ratios such as average sales margins, the cost-to-income ratio or the number of stock turns per year for example. However, it needs to be remembered that each of these line items and ratios will only be one measure, and by itself this is unlikely to tell the whole “story” as it relates to the financial health of the team, department or enterprise as a whole.
Although specialist financial managers may provide most of this kind of data, it is non-financial managers who have to interpret the data and make use of it to manage operations. Hence, as non-financial managers our job is to know which measures of financial performance tend to be better than others and learn how to relate one, two or more individual measures to gain a clearer view. This typically entails making sure that we have carefully defined our terms to get “the lie of the land” by talking about what financial performance is and what it means before we then look at the major financial statements and how they relate to each other – The Balance Sheet, The Profit and Loss or Income Statement, and the Cash Flow Statement.