How to learn finance for non-finance managers
19 June 2019
Senior managers and CEOs of organisations must have an understanding of every part of a business, including the unique challenges, opportunities and workings of each department. But no area of knowledge is more important than finance.
“To reach top management levels in large companies, some background in finance is vital,” explains SCU Online finance lecturer Jennifer Harrison. “CEOs need to understand the language of finance so they can communicate effectively with the board of directors, shareholders and analysts.”
Not only that, but managers at all levels need to know the drivers of firm value, Harrison says, so they can create and manage real, sustainable value for the business, rather than pursue growth at any cost. And it’s as important in small and medium businesses as it is in large.
“Obviously, knowing how to better make investment and financing decisions can only help those owning and managing small businesses,” Harrison says.
Hard skills are vital
These days we hear a great deal about the essential nature of soft skills for leaders in order to motivate, connect on an emotional level, get along with all types of stakeholders and inspire confidence in specific strategies in order to hit pre-defined goals.
But hard skills are just as important for successful business management. This includes technical abilities in the particular area of the organisation itself and, more importantly, financial acumen.
For those working their way up through an organisation via other departments, financial knowledge can be difficult to come by outside of simple processes such as reading a budget and handling invoices. Thankfully, one of the most powerful benefits of an MBA is the deep and tangible finance knowledge it offers, always backed up by case studies and projects that help to give the learning a high level of real-world purpose.
Finance is explored from numerous angles in the SCU Online MBA program, in order to give graduates a full and rounded knowledge of the vital area of business management.
Here are some of the key aspects of the Finance For Managers unit:
Time value of money
Even in a zero-growth environment, all money is worth more now than it will be worth in the future, because of its earning capacity. Understanding this core rule of finance, and knowing what it means and how it should be applied in a practical, business sense, is essential to a strong understanding of the finance function.
The time value of money will vary for different businesses and in different industries, but in terms of investment, interest rates, valuation, capital expenditure and cash flow, it is a core consideration for every company.
Bond markets and interest rates
In the bond market, new debt is issued and debt securities are traded. For organisations, the bond market can be a vital source of funding and investment. Along with banks (and including the government bond market), it is one of the two major components of the credit market.
An understanding of the bond market helps to solidify a broader working knowledge of financial markets. The value of bonds can be directly affected by changes in interest rates, which in turn are affected by a nation’s monetary policy. The bond market, therefore, is an important economic indicator for business leaders.
Risk, return and diversification
Without a strong practical and theoretical knowledge of finance, the delicate balance of risk and return is reduced to guesswork. That guesswork is removed by financial mathematics, risk analysis, revenue projections and more, giving a management team the data they require to make an informed decision around optimal levels of risk and return.
These figures also help the business to recognise the unique benefits and drawbacks of diversification, and to figure out the exact levels of diversification that are required to minimise risk and maximise return.
Capital investment is often an essential part of business growth, but how does one figure out the optimal levels of investment in order to ensure, and maximise, return? In the Capital Investment Analysis segment of the Finance For Managers unit, SCU Online MBA candidates learn the decision criteria, including cash flow estimation and the risk and cost of capital.
Of course, appropriate capital budgeting techniques are taught, meaning SCU Online MBA graduates not only have the tools with which to evaluate capital investment, but also the expertise to utilise those tools in any business environment.
Alternative company capital structures
Every business has choices of capital structures and distribution policies, or payout policies. The capital structure is the method, system or shape of the financing of the entire business operation, and therefore is also the catalyst for growth.
In the Finance For Managers unit we explore various capital structure options and investigate their application to real-world case studies.
Depending on the size and shape of the business itself, capital structure can vary from simple investment arrangements to hybrid combinations of equity in various types and levels of stock, and debt from banks or the bond market.
Of course, capital structure relates to all of the previous segments of the unit, tying them together as a whole.
- the time value of money and the resulting effects of that time value on the business’s overall financial performance
- the way that bond markets and interest rates work and how they influence the business and its market
- the most appropriate levels of risk for the desired return
- the most appropriate levels of diversification to further mitigate risk and to empower return
- the methods and tools to make sound decisions around capital investment
After completing this unit of the SCU Online MBA, the student inherits a broad and valuable understanding of the powers at play in, around and outside the finance function. Without such knowledge, leading a business into the future is extremely difficult, if not impossible.
Perhaps most importantly, finance knowledge gives MBA graduates the confidence to go into conversations armed with the right questions to seek the best information that will help them make properly informed decisions.
Find out more about learning these business skills and more by studying an MBA with SCU Online.