Why Understand Finance?

...it will explain what you need to know to be an intelligent consumer of financial concepts in making business decisions.

No matter where you work in your organization, understanding basic financial concepts will help you do your job better and contribute to your company’s efforts to stay in business and turn a profit.

Understanding Finance explains the basics of this important subject. It will not into make you a finance expert, nor will it qualify you to become a financial analyst, controller, or chief financial officer. But it will explain what you need to know to be an intelligent consumer of financial concepts in making business decisions.

Reduced to its essentials, business finance is about acquiring and allocating the resources a company needs to operate. Regarding resource acquisition, finance is concerned with questions such as:

• How will our company acquire and finance its inventory, equipment, and other physical assets?

• Should we use the owner’s money, borrowed funds, or internally generated cash for resources acquisitions?

• How long does it take to collect money owed to us by customers?

And regarding resource allocation, finance helps mangers answer questions like:

• If we could invest in several ventures, how might we determine which would ultimately generate the greatest value?

• What return must an investment produce to be worth making? And how should we measure return?

• How can we determine the profitability of our company’s different offerings?

Sometimes finance is also part of a company’s information system along with accounting, to produce financial statements, budgets, and forecasts. These documents give you the numbers your need to ask key questions and to make savvy decisions for your own division, department, or team if you interpret and use them correctly.

ACTION POINT: Understand finance from the perspective of resource acquisition and allocation.