Finance for Non-Financial Managers is a popular training course for professionals of all levels that need to improve their financial acumen and improve their ability to interpret a company’s financial statements and use this information to make sound business decisions.
It’s the nature of finance that invariably there will be spreadsheets involved. If you need help improving your spreadsheet skills you can view this range of Excel courses.
This article will explore the four basic financial statements Managers need to be comfortable with:
The balance sheet provides a snapshot of an entity as of a particular date. It does this by showing what your business owns versus what it owes.
It displays your business’s status in the form of its assets (what you own), liabilities (payments you still owe) and the equity (the amount your shareholders own).
If your business is healthy, the assets will be equal to (balance with) the liabilities and equity.
One important number we look at on the balance sheet is liquidity. In order to evaluate this, you want to look at the current ratio.
This is a measure of working capital. It compares the current assets, which are assets that can be turned into cash in the next year, with current liabilities, which are obligations that have to be paid in the next year. A ratio of at least 2:1 of liquidity to debt is ideal.
The income statement or profit & loss statement presents a summary of the revenues, gains, expenses, losses, and net income or net loss of an entity for a specific period. This statement is similar to a moving picture of the entity’s operations during this period of time.
The profit and loss account does exactly what it says: it shows whether your business has made a profit or a loss over a given period of time. It does this by showing your total income and your total expenses, and whether your business has earned more income than it has spent on its running costs. If you have, then you’ve made a profit.
A profit and loss account will include your credits (including turnover and other income) and deduct your debits (including allowances, cost of sales and overheads) to find your bottom line figure – either your net profit or your net loss.
Cash Flow Statement
The cash flow statement illustrates a company’s short-term viability and is useful for calculating your ability to cover payroll and other expenses like bills.
This financial report shows the cash generated (cash inflow) and used (cash outflow) over a specified period of time. Cash flow is split into the following activities: operating, investing and financing.
The cash flow statement is therefore very useful for potential investors, lenders and creditors as it gives a clear view of a business’s short-term health.
Statement of changes in owners’ equity or stockholders’ equity
A statement of changes in owners’ equity or stockholders’ equity reconciles the beginning of the period equity of an enterprise with its ending balance.
If non-financial Managers are to move upwards in their organisation and in their career strong financial acumen is critical. Finance Skills can also help to improve your own productivity, efficiency and performance.
If you found this article useful you might also be interested in this infographic which explains 10 key finance skills every manager and executive needs.