Finance and
accounting
Introduction 38
Maths for managers 38
The financial structure of the firm 41
Financial accounting 44
How to use the Capital Asset Pricing Model 45
Assessing investments in practice 48
Overseeing budgets 52
The balanced scorecard 54
The nature of costs: cash versus accruals 55
The nature of costs: fixed versus variable 56
Cutting costs: method changes 58
Cutting costs: slash and burn 60
Cutting costs: smoke and mirrors 61
3
THE MOBILE MBA
38
INTRODUCTION
Some people fall in love with numbers for the same reason people fall in love
with distressed donkeys: they are preferable to humans. But numbers are very
dangerous. They give the illusion of certainty in a very uncertain world. You
cannot run a business just by sitting behind your desk and dealing with the
numbers. John le Carré wrote in Tinker, Tailor, Soldier, Spy
a desk is a dangerous place from which to view the world’.
That is as true for managers as it was for le Carré’s spies.
The good news about finance and accounting is that
you do not need to be in love with the numbers: you do
not have to be a maths wizard. The key to working the
numbers is to:
understand the thinking and assumptions behind the numbers
understand why the numbers may or may not be reliable.
If you can do this, then you will be highly effective at dealing with finance,
accounting and the maths of the business. So the focus of this chapter is not on
numeracy but on thinking. If you think clearly, you will be far more effective than
someone who uses numeracy as a substitute for thinking. Numbers should sup-
port thinking, not constrain it.
MATHS FOR MANAGERS
Maths make some people break out into a cold sweat, while others start drool-
ing with excitement. An MBA course makes all managers sweat the numbers
and the maths. Here are 10 ways in which you can drive business thinking into
the numbers you are presented with.
numbers
should support
thinking, not
constrain it
Ten ways to control the numbers
1 Work the assumptions not the maths. You know that the spreadsheet in front
of you will have been created from the bottom right-hand corner upwards. People