No matter where you work in your organization, you'll do your job better if you understand basic financial concepts. You'll be a more effective contributor to your company's efforts to make money and grow.
This short explains the basics of finance. Though reading it won't make you a finance expert, it will help you:
Make sense of the three key financial statements.
Gauge your company's financial health.
Weigh costs and benefits before committing resources.
Consider financial risks when making decisions.
Estimate future performance.
Track investments against what you've budgeted.
Why Understand Finance?
Finance matters to all companies because they all have to bring in money and spend it in order to do business. On the bringing in side, smart managers consider questions like these:
How much of our money comes from the owners? How much from sales? How much from borrowing?
Which of our product lines and regions earn the highest profits? Which ones fail to perform?
How long does it take to collect money that customers owe us?
On the spending side:
Are our costs what they should be? Are we spending the right amount on our people and on our physical assets, such as office space and computer equipment?
If we can invest in only one of several opportunities for growth, how do we determine which one would generate the most value?
If we increased our output by 20%, would we make 20% more money?
Your company's finance department produces financial statements, budgets, and forecasts. By understanding these documents, you'll gain the information you need to ask essential questions and make smart decisions for your division, department, or team.
By the way, finance uses jargon that may be unfamiliar to you. Sometimes different terms mean exactly the same thing- profit and earnings, for example, or sales and revenue.
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