If there was ever a time a company and its leaders need deep financial acumen it is now. Many of us have experienced periods of financial turbulence in our lifetimes. Black Monday on October 17, 1987, the aftermath of September 11, and the Global Financial Crisis of 2007 and 2008 are some of the more memorable. But these events, as extreme as they were, pale in comparison to the current Coronavirus pandemic.
WHAT IS FINANCIAL LITERACY? Financial literacy is the ability to read and use common financial reports and ratios to assess business performance. There is enormous value to a leader in understanding this building block of business acumen. It allows a leader to make informed decisions and project the financial impact of their day to day choices. It makes a leader more confident and more competent in his or her role. It is difficult to be a strong player in any game if you can’t read the scorecard.
You’ve heard the expressions before, “Cash is king” and “Cash is the lifeblood of a company.” Sounds sensible, but what does it really mean? If cash is king, what about profitability?
For the past two decades the service sector has been the fastest growing portion of the economy. Service businesses including consultants, contractors, hospitality and professional services are reshaping the business landscape. As many of these fast growing businesses mature, they are now looking to fine tune their business models. And yet, many business leaders either don’t understand or cannot articulate the economic flows that make these businesses tick, the dynamics that keep them cash-positive and ultimately enable them to grow profitably.
A growing chorus of business leaders is questioning the singular notion of maximizing shareholder value. In a recent Forbes article, Jack Welch and Marc Benioff, Chairman and CEO of Salesforce, both label it the “World’s Dumbest Idea”. Neither of these CEOs think shareholder value is unimportant, but without using the label they advocate a more Balanced Leadership approach. Marc Benoiff in an essay in the Huffington Post calls for maximizing stakeholder value while Jack Welch says, “Shareholder value is an outcome—not a strategy.”
Who would have thought this would be the year terms like “tax inversion” and “strategic finance” became cocktail party conversation? Thanks to proposed restructurings by Walgreens’ and Burger King, that’s just what’s happening. People are talking. And, they’re realizing the importance of financial strategy and its application. In this case, the tradeoffs were clear and interesting – cost savings versus local presence. Walgreens leaned towards local presence and Burger King towards lower cost structure.