From WC (working capital) to ROI (return on investment) to P&L statements (profit and loss), the number of financial terms used to discuss a company's finances can be staggering. A fact that leads many managers to avoid such discussions. However, understanding the nuts and bolts of a company's finances opens the way for improving productivity and helps managers understand financial decisions.
Whether it's a market crisis or increased competition due to globalization, companies are often forced to increase their productivity. This can however be a difficult task if banks are hesitant to lend, forcing companies to rely on their ability for self-financing. "To do so, companies have to improve their results and increase their liquid assets. This will, for example, require them to lower their need for working capital and take decisions that affect shares and billing due dates." explains Stéphanie Boyer, head of the MSc Finance program. Middle management is in fact on the frontline when it comes to questions of liquidity.
Profit does not equate to cash
"One of the key issues that managers must be aware of, is the impact of their actions on their company's available funds. They have to understand that earning profits does not necessarily translate to having cash on hand. For example, when a company delivers a product or carries out a service, this can be seen as an immediate increase in profit. However, increasing your cash on hand only takes place once the bill has actually been paid. A simple example that highlights the importance of asking for an advance or insisting that clients pay on time." explains Stéphanie Boyer.
Understanding leads to action
Grenoble Ecole de Management (GEM) has developed a personalized training course designed to explain financial questions to non-finance employees. The idea is to transmit the necessary fundamentals to all those who are involved in a company's finances. Thus giving them an opportunity to learn about the many aspects of financial questions such as balance sheets, cash flow, profit margins or return of capital. Developing managers' financial savviness allows them to not only understand decisions that are passed down, but also encourages them to take concrete actions for improvement. In addition, having the capacity to explain decisions is a skill that can help motivate one's team.
A recent participant shares his impressions
Valery Masson, a travel manager at Roche Diagnostics France, took part in this training in July 2014. He comments on how it has helped guide his decisions and allowed him to understand financial decisions taken by his superiors.
Why did you choose to take part in this training?
My main goal was to build on the skills in finance and management that I had already developed during my studies at GEM. As my job is linked to the purchasing department, I have to explain my choices to the financial department and managerial accounting. In addition, I also have to understand and follow financial guidelines set up by the company. Expanding my knowledge of finance has allowed me to better understand the role I play in the company's budgetary process.
What are your thoughts on this two day training course?
First of all, I would like to highlight the excellent teaching methods used in this class. I found the balance between theory and practice to be very efficient. We covered all aspects of the budgetary process: profit and loss statements, balance sheets, amortization, the impact of financial transactions on cash flow, etc. Through precise examples, we were able to build an overall vision of these challenges. In addition, the training was adapted to fit the realities of our company's activity.
How has this training influenced your everyday work?
I now have the financial vocabulary that allows me to exchange with my colleagues in managerial and financial accounting. My decisions are also guided by my newfound understanding of the company's overall budgetary process. Even if I don't use every aspect of the training course daily, I now have a solid foundation that I can use to face new challenges in the future. The bottom line is that I better understand the role I play as well as the roles played by my colleagues in the finance department.
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