February 22, 2013
For the uninitiated, financial statements can seem overwhelming. But they don’t have to be. The key is to understand that, unless you’re a CFO or a financial analyst or a commercial loan manager, you don’t have to understand everything in these statements to discover important clues about the health and sustainability of a company. Just like you don’t have to be a certified electrician with a deep understanding of the wiring digram in your home to turn on a light switch. Similarly, you just need to know which primary switches turn on the right financial lights – and how you, in your individual role, can help keep the lights burning strong by making smart decisions.
Watch this video from Kevin Cope, author of the bestselling book, Seeing the Big Picture:
Watch the video as a group in your next meeting and discuss the following…
- Kevin gives 5 reasons for understanding financial statements (you may want to list those 5 reasons on the board or tell your team to note the reasons as they watch the video). Discuss how understanding financial statements can benefit your credibility, career, and company.
- What did the Russian say when introducing Kevin? Do you think he’s right?
- Project your screen and navigate to your company’s most recent financial statements (or if everyone on your team brings their laptop, see who can find the company’s financials the fastest). The goal is for everyone to know where to find the financials.
- Bring a print out of your P&L, Balance Sheet, and Income Statement and 4 different colors of highlighters. In groups have your team highlight the connections between the three different financials.
- Discuss the path from Sales/Revenues to Shareholders. What part of the path seems to be the strongest? What part of the path gets the most attention from executives? What part of the path does your team have the most influence on?
- Bring a print out of your competitors 3 financial statements (or the financials of a company you admire) and highlight and discuss the path from Sales/Revenues to Shareholders. How does their path compare to your company?
Quarter after quarter, and year after year… you and your team should print out your financial statements and use your business acumen to follow the path from Sales to Shareholders. Pay particular attention to trends – how has the story changed from the last period or from the same period a year ago? If you work for a private company do this activity by choosing a public competitor or a company you admire.
Seeing the Big Picture:
If you and your team have the book Seeing the Big Picture (Greenleaf, 2012) read the first section of Chapter 7 starting on page 110: Deciphering Financial Statements and the Annual Report.