iness is taking decisions and every role calls for decision making. Higher the hierarchy, the bigger the impact of decisions. The availability of reliable information, especially of the monetary kind, is inevitable for efficient decision-making. You need financial literacy to be a better decision-maker. Following are the important reasons that state why you should have basic knowledge of finance:
- Understanding accounting reports
The information required to make decisions is in the financial reports which can be difficult to understand for the individuals who don’t have sound knowledge in finance. They must be able to evaluate and understand the main reports like Profit & Loss Account and Balance Sheet.
- Revex and Capex Budgets
Professionals need to understand the difference between revenue and capital expenditure. Capital expenditure involves acquiring or improving permanent assets not meant for sale. On the other hand, revenue expenditure is the money spent in the normal course of business and includes the cost of sales and maintenance of fixed assets.
- Preparing cost-benefit proposals
A cost-benefit analysis is a process that businesses use to analyze decisions. The business or analyst sums the benefits of a situation or action and then subtracts the costs associated with taking that action.
- Working capital management
Working capital is a financial metric which represents operating liquidity available to an organization. You should ensure that your role doesn’t have a negative impact on the working capital management of the company.
- Managing accounts receivable
Collecting money from customers is critical to the survival of any business. Many managers struggle to achieve the right balance between achieving sales targets and managing receivables.
- Understanding bonus and incentive schemes
Individuals must know the components that are considered in their bonus and incentive schemes.
- Understanding how inventories or stocks are valued
In many companies, inventory represents a large, if not the largest, a portion of their assets. The assets need to be accurately valued so that the company as a whole can be accurately valued.
- Resource allocation or prioritization of projects
Organizations have limited resources. So, the approval of projects is done on the basis of various methods like pay back, DCF, NPV, and IRR. IF you don’t know these methods, you cannot state why your project must be approved.
- Costing and cost management
Costing is the determination of costs for the products/services sold by a company. Cost management aims to improve a company’s profitability by managing, controlling, and eliminating expenses.
- Ability to deal with finance and accounts department
Most importantly, you can confidently deal with the finance and accounts department when you have a clear idea about the finance concepts.
Training in finance can improve your knowledge in these aspects and help you to make better decisions and contribute positively to your organization.