Dr. Nalaka Godahewa, the Branch President of the Institute of Certified Management Accountants of Australia, has a unique combination of professional and educational qualifications. He is an Engineer, A Chartered Management Accountant and a Chartered Marketer. He also holds an MBA and a PhD from University of South Australia. Currently an advisor to the Board of Investment (BOI), Nalaka has gained top level management experience in four different industries and three different countries, with his last assignment being CEO of Sri Lanka Insurance before joining BOI. Dr Godahewa has been contributing to the field of business education for more than 17 years. Dr Nalaka Godahewa shares his views below on the importance of financial literacy for those who aspire to progress faster in corporate life.
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| Dr Nalaka Godahewa, Branch President of CMA (Australia) |
If you want to achieve the highest possible position in your career, nothing is more important than a sound knowledge of finance. 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.
It's true there may have been a time when financial literacy was not quite so essential. In the highly functionalized and hierarchical organizations 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 organizations 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 exactly do you need to know.
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 analyze 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.
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