MBA aspirants must be updated with General Awareness on current topics. General awareness topics with analytically drawn conclusions will benefit you in Essay writing / GD & PI. Today, you will read General Awareness Topic:
Finance Knowledge will make ‘Non Finance Executives’ more analytical in decision making
In this day and age, one should be a ‘jack of all trades’ instead of being a ‘master of only one trade’. Organizations always keep a lookout for people who are adept at multitasking.
When one person is able to carry out the tasks of two or three individuals, it is cost-effective for the organization. Gone are the days when one person would only be in-charge of one task.
Now, interdepartmental communication and transfers have become commonplace, making it a necessity for people of one department to know how other departments operate.
It is not just accountancy specialists who work on spreadsheets and figures; even as a non finance executive, you may be required to analyze financial data, cash flow statements and balance sheets.
For such tasks, you should be aware of financial terminology and understand the basics of this field. To make good decisions, one needs solid financial information and this data comes from the accounting system.
If a non finance executive is planning to cut costs, he should refer to the general ledger, which throws light on the assets, liabilities, revenue, equity and expenses of the company.
So, if a non finance executive is keen on reducing the operational cost of the organization, he/she should identify expenses and liabilities that can be eliminated. In the general ledger, every item is considered either a debit or a credit.
So, if you are keen on enhancing the revenue of the company, your focus will be on increasing the credit of the company.
If you want to gain a bigger picture on how your company is performing, you should refer to the income statement. The income statement provides a snapshot of the inflow of revenue and the outflow of expenses.
Revenue is the inflow of assets, such as cash gained by the company for services performed or products sold, whereas expenses is the outflow of assets such as cost incurred for purchasing supplies, rentals and for paying taxes. The difference between the revenue and expenses is the net income.
KPMG India, one of the largest professional services companies in the country, believes that one of the biggest obstacles that hinder the growth of non finance executives is their inability to analyze and judge the financial strength of their strategic inputs.
By making sense of financial data, one will be able to assess financial risks, identify the right business opportunities and evaluate their own ideas through a financial lens. KPMG India conducts programs for its employees, especially those who do not have sound financial knowledge.
Through such programs, KPMG India enhances the participants’ knowledge of financial principles, and basic accounting terms and concepts.
Managers and executives claim that their business proposals often get rejected because of budget constraints. This happens because non finance managers and executives come up with proposals and ideas without considering the financial status of the company.
By analyzing financial statements, you will be able to come up with business proposals that are in line with your organization’s financial risk capacity.
To make sound decisions, one should have an in-depth understanding of how each department functions because decisions do not simply affect one department; the effect spreads to all the departments in the organization.
An organization should function as a whole, and decisions should benefit all departments, which is why it is important for managers and executives who are involved in decision making to have sound financial knowledge.