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Financial Reporting: Why Numbers aren’t the Only Metric Measured

Each term, I share with my MBA students the importance of the financial metrics. After all, the financial report card is an important tool to help increase stock prices and spur future investments. Having a strong working knowledge of these metrics is an important piece of the MBA learning process. At Benedictine University one such example is the use of the BSG (Business Strategy Game) simulation. This business simulation game exposes students to the key financial metrics and the impact different decisions play upon the final results.

But there is more to a firm’s story than simple financial results. Future leaders must look far beyond the results to determine how the future will sustain or improve. Not all financial stories are positive. But when using data in any business situation financial metrics are sending you a signal. Underneath all of the financial report lives your organization. The organization creates the financial results. How well the strategic plan is executed on a tactical and operational basis are necessary inputs to the financial outcomes.

Coupling the organization’s effectiveness with the financial results is required learning for future MBA students. How you transform conceptual theory to use in a practical setting is critical to running a successful business. There are enormous amounts of inputs that are required to create and sustain a business. But the rules are generally the same for budding entrepreneurs or intrapreneurs. Just think of all the decisions that must be made even if you are in charge of a small team or managing a project. Now think of what a multinational organization must do to continue driving organic growth and manage above average returns over an extended period of time.

The firm’s people, process and environment is where the important “stuff” lives. There is a balance between financial results and  how the organization operates. An MBA student must take this balance into consideration. The financial results are merely the outcome of whatever was accomplished within the organization. How the culture of the organization is structured and impacts performance is a critical input of the financial results. Think of the Balanced Scorecard. One piece is tied to financial performance. The other three pieces of the Balanced Scorecard; customers, learning & growth, and business process are driven by the internal workings of the organization. How a strong leader manages internal people and process will excite/delight customers and create above average financial returns!

Sounds quite simple at least on paper but as I share with my students this is quite complex. How current and future leaders balance all the pieces of the organization requires a high skill set. Sustaining an organization and responding to the dynamics of the environment are the necessary inputs.

Even though the financial results are the byproduct of various inputs there is no excuse for not taking the time to become comfortable with the “numbers”. So current and future MBA students, when your instructors are pressuring you to analyze and report upon a firm’s results know there is much more to making the “numbers.”

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.