Harvard Business School decided to test new managers to see how much they knew about the business terms and financial workings of the companies that they worked for. We suspect that even Harvard was surprised at the low scores on the exam. The 300 managers tested received an average of only 38%.
How well do you think you would do?
Here are a few questions for new managers (and their bosses) to ponder:
- Reading and Interpreting Basic Financial Statements. How well can you decipher the import of the numbers on your company’s financial report? Can you define COGS? How does it affect the bottom line? Does it matter whether cash flow originates from operations or investments?
- Leverage Points. What factor has the greatest impact on a company’s available cash: timeliness of invoice payment, rising profits, increasing retained earnings or higher accounts receivable?
- Cash Flow. Why do analysts and investors care so much about free cash flow and what does the term mean?