Management’s operating, investing, and financing decisions and strategies

In business today, every successful manager and leader needs to be able to speak and understand the language of finance. With more integrated strategic operations and more dynamic organizations, these skills that were once reserved for accountants and finance professionals are fast becoming needed by everyone for career success.  

About Analysis of Financial Information

In this program, you will learn to understand the sources and decision usefulness of your company's financial information. Using cases based on current news events, you will learn how to analyze financial statements and other corporate disclosures to communicate important insights into your company's operating, investing, and financing decisions. The program will also highlight various elements of the infrastructure of financial reporting that lead to high quality financial information.

Who Should Attend?

Designed for managers or executives without a strong background in accounting or experience analyzing financial statements, but who realize the importance of such skills in today’s global marketplace.

Learning Objectives & Program Benefits

This program has been designed to improve your financial and business acumen with the ultimate goal of understanding how routine, as well as innovative, decisions affect your companies’ performance as measured by accounting metrics. You will:

Becoming an effective manager requires continuously honing and improving your management skills. This could mean exchanging resources with others in your network, reading books or publications, or taking online courses.

Not to be overlooked are the management tools you have at your immediate disposal: your business’s financial statements. Financial statements can be used by managers to track performance, budgets, and other metrics, and as tools to make decisions, motivate teams, and maintain a big-picture mindset.

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3 Financial Statements Used by Managers

There are three key financial statements managers should know how to read and analyze: the balance sheet, income statement, and cash flow statement.

The balance sheet provides a snapshot of a company’s financial health for a given period. It lists the assets, liabilities, and equity line by line for the period so that stakeholders can understand the breakdown.

The income statement, also known as the profit and loss statement, or P&L, gives an overview of the income and expenses during a set period. Typically presented annually or quarterly, the income statement allows businesses to compare trends in income and expenses over time.

Finally, the cash flow statement details the inflows and outflows of cash for a specific period. Broken into operating activities, investing activities, and financing activities, the cash flow statement demonstrates the business’s ability to operate in both the short and long term.

When analyzed together, these statements provide a holistic view of the financial health of your organization. They can be used to learn from previous pitfalls and successes as you strategize for the future. Here are six ways you can leverage your company’s financial statements to excel as a manager.

Related: How to Prepare a Balance Sheet: 5 Steps for Beginners

6 Ways Managers Can Use Financial Statements

1. Measure Impact

As a manager, it’s important to have a method for tracking the impact your efforts have on your company’s bottom line. Take a look at your company’s income statement, and note the direct expenses related to the revenue for that period.

Perhaps you purchased a piece of software, requested more ad spend, or hired a specialist for a big project. Did those expenses result in the net income you were targeting? Moving forward, you can learn from your mistakes and double down on investments that paid off.

2. Determine Budgets

Financial statements are also useful when managing and planning budgets. Because the financial landscape is ever-changing, John Wong, HBS Online’s Senior Associate Director of Financial Planning and Analysis, cautions against using previous financial statements as a starting place for future budgets.

“Historical data is essential to building a budget, but should be used as a reference point and not necessarily a starting point,” he writes in a previous blog post.

An understanding of your company’s financial health and history is necessary when budgeting, and should be paired with a forward-thinking mindset.

3. Cut Unnecessary Costs

Being able to see your company’s expenses line by line on both the income and cash flow statements can highlight areas where it’s possible to cut costs. Maybe you’ve been paying a monthly subscription for a service you no longer need, or your team outings could be scaled back in favor of more inexpensive activities. Seeing a list of every expense and how it impacts your company’s net income can be an eye-opening chance to save money and reallocate spend where it’s needed most.

4. Think Big-Picture

Keeping the broader health of your organization in mind is vital when managing your team. Analyzing the balance sheet, income statement, and cash flow statement can allow you to understand the ins and outs of your company’s finances and give you bigger-picture clarity to guide your goal-setting and decision-making processes.

Related: 5 Ways Managers Can Use Finance to Make Better Decisions

5. Align Across Departments

Your company’s financial statements can be used to ensure multiple departments are on the same page. When managers from each department have analyzed the statements, discussions about goals and budgeting can center on a shared understanding of the organization’s current financial health, and offer perspective into other managers’ goals and motivations.

6. Drive Team Motivation

Consider using your company’s financial statements as tools to motivate and engage your team. The income statement can show how your employees’ projects positively impacted the company’s revenue, which could boost their performance and drive.

When setting team goals, leverage financial statements to provide context for why specific benchmarks were targeted and the thought process behind your plans for reaching them. Instill in employees your same big-picture mindset and the knowledge that their efforts make a tangible difference to the company.

Management’s operating, investing, and financing decisions and strategies

Become a Finance-Driven Manager

Your organization’s financial statements are valuable assets you can use to make strategic decisions and manage your team. If you’re unsure of where to begin, brushing up on your financial literacy, networking with finance professionals, or taking a finance course are great places to start. Bolstering your financial knowledge can enable you to make the best use of the resources available to you and become a finance-driven manager.

Are you interested in using finance to become a better manager? Explore our six-week online course Leading with Finance and other finance and accounting courses and discover how you can gain the skills and confidence to use the fundamentals of finance in your career.

Which financial statement separates business activities into operating investing and financing activities?

The statement of cash flows presents sources and uses of cash in three distinct categories: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

What is the most important financial statement?

The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit. Also, the information listed on the income statement is mostly in relatively current dollars, and so represents a reasonable degree of accuracy.

Which of the following is considered an operating activity?

Operating activities are the daily activities of a company involved in producing and selling its product, generating revenues, as well as general administrative and maintenance activities. Key operating activities for a company include manufacturing, sales, advertising, and marketing activities.

What is in statement of cash flows?

A cash flow statement summarizes the amount of cash and cash equivalents entering and leaving a company. The CFS highlights a company's cash management, including how well it generates cash. This financial statement complements the balance sheet and the income statement.