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Define Your Path

The Importance of the Use of Financial Metrics When Pursuing an MBA

Computer screens with financial metrics

A push back I receive from students in the MBA curriculum comes when I ask that they include financial metrics to support their case study analysis. In the real world a firm’s report card includes financial performance. To be clear, financial results should not be the only important measurements one uses when reviewing a firm’s current position. Other important issues such as sustainability, social accountability and strategy are performance issues that should not be taken lightly. However, the financial metrics allow stakeholders a method to gauge success in the marketplace. When referring to financial metrics think, earnings per share (EPS), return on investment (ROI), return on assets (ROA), cost of capital (C of C), compounded annual growth rate (CAGR), free cash flow as well as others.

So why do many MBA students cringe when the request is made to include these financial metrics when analyzing a case study? So I thought back when I was an MBA student with a major in Operations and recall I too did cringe a bit when I got to the financial section of a case study review. Not being in a financial position at work may be one reason. At the time I was more interested in whether or not the firm was winning. What were the sales and profits? Were we able to meet our cost commitments and stay in business? Could I have the money I needed to invest capital into operational improvements? Why would I ever need these metrics? As I advanced in my profession I found the financial metrics to carry more weight in my future decision making. I was faced with making decisions that were a result of the performance of these metrics.

But how can you convince an MBA student of the importance of the “numbers” when analyzing a business. Besides simply making it a requirement on the rubric, I try to insure MBA students use these metrics as the outcomes of a successful strategy. After all, businesses that deploy a sound business plan are measured as successful using the key financial metrics. This allows the student to compare different companies using the language of Finance. Similar to any learning, practice makes perfect. By requiring MBA students to include a financial piece in their analysis allows them the opportunity to practice through repetition in a safe environment. It does not matter what profession you pursue, a clear understanding of the financial metrics is a requirement for any good MBA student to know.

Using past financial metrics are important inputs for future decision making. The metrics serve as your “report card”. As in school your report card enables you to review if your efforts paid off as well as determine what has to change to improve performance. So current and future MBA students embrace financial metrics and use them wherever you can to support your analysis. I will guarantee you one thing. As your advance in your career you will be expected to know these metrics and how they impact the firm.

About the Author

Pete Papantos is an operations director at a Fortune 500 company. He is responsible for the global execution of their strategic plan and driving operational excellence using lean methods. In addition, Pete is a graduate instructor with emphasis in operations and strategic management — both in traditional and online settings.