I’m teaching finance but I’m still learning, and I am privileged to work with great people. Last week was different as I was working with a group of scientists in Cambridge. And unusually for 2020, this was live in a conference room, not online.
No problem with being sensible about Covid compliance however – this group wear protective gear and lab wear all the time, and in their spotless working environments they know how to keep clear and stay clean too.
I felt the content of the training looked very straightforward until I saw some flip charts in their conference room – full of complex equations. The people were lovely, and evidently very intelligent.
But finance? Not so confident. They had heard some of the words, knew how to look at figures, but found finance a bit daunting. Just like I found their flip charts.
I was reminded of the classic Harvard Business Review article which reported a study into managers understanding of finance. Around two thirds of managers in a typical management meeting did not know the difference between profit and cash.
What often happens is that in such meetings, the Finance Director/CFO starts talking, everyone else shuts up and avoids asking questions in case they come across as ignorant.
After the training sessions last week everyone reported they felt much more confident about finance, as I would hope.
One of the things they discovered is that in science, you are often looking for definite outcomes – for example if testing a sample for contamination or not. But finance is different. The only thing that is definite is that the Balance Sheet must Balance – everything else is judgment, shaped by guidelines from professional bodies.
Reading a set of Accounts for me is straightforward, after all I have been doing it for a long time. I’m used to it.
To others it’s Rocket Science.
But you can learn about finance much more quickly that you can learn how to work in a laboratory.
And if I can do it, it can’t be rocket science!
https://hbr.org/2009/10/are-your-people-financially-literate
Buzzword of the Week – Dividends
Definition – A dividend is a token reward paid to the shareholders for their investment in a company’s equity, usually from the company’s net (of tax & interest) profits. While most of the profit is kept as retained earnings– the money to be used for the company’s ongoing and future business activities–the remainder can be allocated to the shareholders as a dividend. Companies may still make dividend payments even when they don’t make suitable profits in that year but can pay from previous retained earnings.
The directors can choose to issue dividends over various time frames and with different pay-out rates. Dividends can be paid at a scheduled frequency, such as monthly, quarterly or annually.
Alternate View – All sounds good if you are a shareholder. But note – dividends are optional even when there are profits, and it is the directors who decide. Still, shareholders can always vote out the directors of they don’t like it: in theory. Regulators have prevented banks paying dividends for a time during the Covid pandemic, to help bolster reserves. Don’t forgot the tax element either. Maybe that’s why some Private Equity shareholders prefer to load the company with debt and take interest instead?
Online Learning – my first online programme – How to Read Financial Statements – is now available. This is a series of 7 online lessons:
1. How finance fits with Strategy
2. The Language of finance
3. Owning & Owing – using the Balance Sheet
4. Measuring & Managing Profit
5. Measuring & Managing Liquidity
6. Budgets, what, why & how
7. The most important part of all
Each last between 20 & 40 minutes and includes the slides and videos to help you understand what good looks like in financial terms. There is a special offer price this week of just $49, and is available now at https://app.mastermind.com/masterminds/8443