Opportunity for non financial managers to gain strategic financial literacy

“If you want to achieve the highest possible in your career, nothing is more important than a sound knowledge of finance” CEO of Sri Lanka Insurance Nalaka Godahewa said.

“This is probably one principle that every business big shot and every business guru would agree on. Everything we do in business has some effect on the ‘numbers’ - whether they’re sales, costs, profits, return on investment, gearing or overall solvency.

So if you don’t have a basic grasp of the financial implications of your actions, it’s very difficult to manage effectively and you’re most unlikely to make it to the top”.

Godahewa made these remarks at a ceremony held at the Imperial College of Business Studies to welcome Prof. Janek Ratnatunge the Regional Director of the Institute of Certified Management Accountants of Australia.

Prof. Ratnatunge expressed similar views. “It’s true there may have been a time when financial literacy was not quite so essential.

In the highly functionalised and hierarchical organisations common in the past, perhaps some successful managers could proceed through their entire careers with only a limited knowledge of finance.

But not now in the flatter organisations of the modern world, where responsibility is typically devolved to business units, managers need a far broader range of expertise and the ability to qualify virtually all their decisions in financial terms.

In this environment of business, to be taken seriously by the CEOs Board Members , FDs and other accountancy-trained colleagues one should be able to talk the language of finance”.

“So here is exactly what you need to know”, explained Ratnatunge. “First, there are the three main financial statements of company life: the profit and loss account, the balance sheet and the cashflow statement.

Most managers are familiar with the first of these and its relatively straightforward formula that profits equals sales minus direct costs and expenses.

Fewer people however understand the balance sheet, which indicates the real health of the business, how much it owes and how much it is owed. And fewer still grasp the vital importance of cashflow, how much money is coming in and out of the business.

From these three statements come the key ratios that can be used to manage the business. These include gearing, return on investment and gross and net profit margins”.

At a more local level, financial literacy demands the ability to create a departmental budget - to lay out your plans for the coming year in terms of projected sales, production costs, selling and distribution costs, and expenses.

It also demands the ability to make a case for new projects through the process of investment appraisal. To get the resources to implement your latest great idea, you must be able to analyse the costs and benefits of the project, its future path of profit and cashflow, and its risks.

Most importantly, you need to understand the time value of money, that because of uncertainty, money expected in the future is worth less than money in the bank today.

“But how could one go about improving the knowledge of finance?” asks Godahewa.

“The ideal way is to do it internally by finding a mentor, someone who understands the company’s finances and is willing to help you learn. An alternative or additional strategy is to follow a finance course”.

But most of the well established financial courses take years of hard work to complete and therefore not the best option for a mid career professional.

The Institute of Certified Management Accountants of Australia now provides a solution to this problem with a unique opportunity for non financial managers to gain the essence of strategic financial literacy without spending years learning.

The graduate management accountancy program of CMA (Australia) is designed in such a way that a University graduate from a recognized University or some one who holds a professional qualification such as Marketing, Banking, Engineering, HR, IT or Law can obtain up to 12 exemptions from the 18 subject course.