Regardless of your industry or role, your career is guaranteed to be influenced in one way or another by finance and accounting.

If you’re a business professional, your performance is likely evaluated based on the value you add to your organization. If you work at a nonprofit, your salary is dictated by its budget. If you’re an investor, financial accounting is how you gain insight into companies you’re considering funding. If you’re an entrepreneur, it’s how you understand whether your business is successful and communicate its performance to others.

For these reasons, most professionals can benefit from gaining financial accounting skills. Below is a look at the most important financial accounting skills you should develop and how you can build them.

Who Needs Financial Skills?

Virtually everyone can benefit from developing financial abilities. The following, in particular, can reap significant benefits by increasing their understanding of basic financial concepts:

  • Recent college graduates: Many college graduates—especially those who don’t study business—may never take a course that teaches basic financial accounting. By gaining this understanding, college graduates can better communicate with potential employers and tie their efforts back to organizational financial goals.
  • Current or aspiring managers: A manager must understand how their team’s performance impacts the company’s bottom line. Without this understanding, it can be difficult to make informed decisions, prove return on investment, and present a compelling case when requesting an increase in budget or resources.
  • Those considering an MBA: Financial accounting makes up a large part of the curriculum found in most MBA programs. If you’re considering an MBA, developing your skills can make it easier to complete your program and get a taste of the kind of work it will entail.

Additionally, many others can benefit from developing financial and accounting skills, including business professionals, individual investors, entrepreneurs, and nonprofit employees.

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Financial Accounting Skills

1. Reading Financial Statements

To gauge a company’s financial health—whether it’s your own, your employer, or a potential investment—there’s no better place to start than its financial statements. These documents contain a wealth of information that can inform everything from budgeting and product development to business strategy and decision-making. Simply put, the ability to read financial statements is a must.

There are many types of financial statements you should familiarize yourself with. Among the most important are:

  • Balance sheets: These documents provide information about a company's “book” value and tally all of an organization’s assets, liabilities, and owners’ equity.
  • Income statements: These documents, also known as profit and loss statements or P&Ls, detail how a company made and spent money for a given reporting period.
  • Cash flow statements: These documents offer a look into a company’s cash flow from operating, investing, and financing activities.
  • Annual reports: Annual reports summarize a business’s economic activity for the prior year, while also using storytelling to convey its progress toward initiatives and goals.

2. Analyzing Financial Statements

To get real value out of financial statements, you need to analyze them. You may, for example, use the information to calculate key ratios or other financial metrics—such as gross and net profit margin, working capital, debt-to-equity ratio, and inventory turnover—that offer more nuanced insight into a company’s financial health.

Developing these analytical skills can empower you in many other aspects of your career as well. If you work in management, for example, and are considering moving to a new company, analyzing publicly available financial statements can allow you to evaluate the business’s health and determine if it’s truly a good career move. Alternatively, if you choose to stay with your current company, being able to zero in on key metrics and offer potential ways to improve them can help make a good impression with members of the executive team.

3. Generating Financial Statements

In most organizations, members of the accounting department and executive suite are responsible for creating financial statements. That being said, for entrepreneurs and those working in a startup environment, the duty of creating these essential documents might fall on them.

Knowing what information goes into each financial statement, how to evaluate that information, and understanding the story it tells is a crucial skill for anyone interested in entrepreneurship or management.

Related: How to Prepare a Balance Sheet

4. Understanding GAAP vs. IFRS Standards

To truly understand the information found within financial statements, you need to know the underlying frameworks that inform an organization’s accounting practices. The two primary accounting standards you should be familiar with are Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

GAAP and IFRS share several similarities but differ in key ways, particularly in how components of the balance sheet, cash flow statement, asset revaluation, and inventory valuation methods are treated. You need to understand those similarities and differences to determine when each should be used, which will be dictated, in part, by the audience (whether US-based or international).

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5. Financial Forecasting

Financial forecasting refers to the ways a business predicts future revenue, cash flow, and expenses. Businesses use forecasts to budget and plan for the future, as well as to offer insights to investors in financial reports.

Making a mistake when forecasting, or otherwise not accounting for risk, can have major negative effects on a company’s ability to do business. Therefore, learning how to prepare pro forma financial statements and accurately forecast revenue and cash flow is a critical business skill.

6. Calculating Return on Investment (ROI)

Another important financial skill that most business professionals can benefit from is calculating return on investment, or ROI. In a business setting, ROI can be tied to a specific project, such as a product launch, or relate more broadly to an organization’s cumulative activities.

Some important terms to know include:

  • Return on invested capital (ROIC): This is a ratio used to measure how efficiently a business allocates capital to profitable initiatives.
  • Net present value (NPV): This is a calculation used to determine the value—in today’s dollars—of future cash flows from a given project or initiative.
  • Internal rate of return (IRR): This metric is used to estimate how profitable a potential investment may be for an organization.
  • Payback period: This is the amount of time it’s expected to take for a business to recoup its initial investment.

7. Developing a Data-Driven Mindset

Reading or preparing financial statements, calculating return on investment, and forecasting the future require you to interact with vast amounts of data. To leverage that data, you need to understand it, evaluate it, and synthesize it into a usable form. You can then use it to inform key business decisions and strategies.

8. The Language of Finance

Virtually all business professionals can benefit from learning the language of finance.

By learning how to talk about finance and money, you can better communicate with others in your organization—your supervisor and team, members of the executive team, and other key stakeholders. This can enable you to tie your efforts to the value you bring to the organization and help foster important working relationships.

If you work in management or interact with the financial team on a semi-regular basis, then it’s likely that you already have at least some level of understanding of the basic language of finance. In that case, furthering your understanding of financial terms and metrics can help you become more effective. If you have no background in finance at all, the effects of developing this skill will be especially profound, as it will open many new avenues of communication both inside and outside your organization.

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Developing Your Financial Accounting Skills

Now that you understand the value of financial accounting skills, you may be wondering the best way to develop them. The good news is that there are several options.

If you’d prefer to go the self-taught route, you can find a wealth of information online to build foundational financial knowledge. Articles, videos, and books from trusted, reliable sources are a great place to start. You can also access most public companies’ financial statements to practice your skills, which are reported on a quarterly basis.

On the other hand, perhaps you learn best with a more structured format, such as a course, workshop, or bootcamp. If you’re a newly appointed manager who wants to refresh your financial knowledge, an entrepreneur gearing up to launch your business, a recent college graduate, a working professional considering an MBA, or someone who simply wants to develop your skills quickly, you may benefit from a more structured approach.

Do you want to take your career to the next level? Explore our online finance and accounting courses, which can teach you the key financial concepts you need to understand business performance and potential.

Tim Stobierski

About the Author

Tim Stobierski is a marketing specialist and contributing writer for Harvard Business School Online.