The Economist Guide to Financial Management

In an organisation financial acumen is a skill that will support any manager in their career. The skill is not about knowing the intricacies of transaction recording or the details of financial reporting; it is about having the ability to do six things:

Seek ways to add value not cost – continually improve the performance of the products and services by adding customer value while eliminating cost and waste in their provision.

Engage with the business strategy

The first stage in designing any report is to identify its purpose and/or the questions that it seeks to answer. Typical questions might be: “What proportion of the budget has been spent?”; “Which transactions are over a specific amount?”; “Which customer invoices are unpaid after 60 days?” Once the purpose has been defined it is a simple matter to create an appropriate report for distribution as frequently as required.

Success can therefore be achieved by understanding and satisfying investors’ requirements, which can be interpreted as “creating a sustainable superior return on investment”.

example, a business has raised $70,000 of equity capital and a $30,000 loan. If the shareholders require 20% return on their money and the bank wants 8%, the average dollar would cost the business 16.4%, which is calculated as follows:
This is known as the weighted average cost of capital (WACC). For a business to be successful and satisfy its investors it must earn at least this rate on its operating activities.

Any project that can earn a business a ROI that is greater than the WACC will help the business be successful.