How communicators can improve financial literacy—and secure a better seat at the table
Upping your business acumen can increase your effectiveness and boost your authority. Here’s what you need to know.
Just the mere mention of math makes many of us to wince.
It might seem scary—or even painful—but communicators keen on boosting internal influence and authority must become fluent in financials.
Karen Vahouny, who teaches a “Fundamentals of Business and Finance for Public Relations Professionals” course at George Washington University, shared helpful tips for math-averse pros at Ragan’s virtual Business Fluency Boot Camp for Communicators on Thursday, July 23. She opened with a blunt quote from Peppercomm CEO Steve Cody: “You’ll fail without knowing how to read an annual report, 10K or other basic accounting documents. If you’re financially ignorant, you’ll be an afterthought.”
Vahouny explained the “trifecta of financial reporting,” which every communicator should learn how to interpret and analyze. The big three include:
1. Income statements, which show what an organization earned from its operations and measures results over a period of time. Income statements track performance, typically over a quarter or year, and they usually list metrics such as sales, gross profit, general and administrative expenses, earnings before taxes and net income.
2. Balance sheets, which reveal the financial condition of an organization at a specific time. Typically issued on the last day of the quarter or year, balance sheets list assets (what you own), liabilities (what you owe), and equity (what you’re worth).
3. Statements of cash flow, which “provide data regarding all cash inflows a company receives from its ongoing operations and external investment sources.” This crucial data analyzes all the reasons net income “didn’t produce the same increase in cash in the bank,” according to Vahouny. For example, it might reveal that you’ve sold more than you’ve actually collected.
Vahouny encouraged PR pros to bone up on basic business terminology and common acronyms, including:
- P/E (price-to-earnings) ratio
- EPS (earnings per share)
- P&L (profit and loss)
- Market Cap (which reflects the value of a public company and is calculated by the price of a share of stock times the number of shares.)
“It takes time, energy and discipline to learn the language of business,” she said, but those who want a better seat at the table had better at least demonstrate a willingness to understand. Of course, just learning definitions will only go so far. It’s far better to understand the data—and be able to extract clear takeaways from the stories hidden in the numbers.
What to look for in financial reporting
Vahouny shared guidance on analyzing annual reports and 10-K forms, which include business and risk factors, selected financial data over five years, MD&A (management discussion and analysis), and financial statements for the year.
She says that annual reports are not required by law, but most companies do produce them, citing survey data that shows that 88% of companies do publish annual reports. (That same research found that 67% produce an online and print version.)
Vahouny says annual reports should contain:
- An overall summary or chairman’s letter.
- Clear, transparent financial highlights.
- Themes and key messages that reflect the personality of the business.
- Conversational, concise language that’s easy to read and view.
- Future-focused content that casts a vision for what’s on the horizon.
For some shining examples of succinct, compelling financial reporting, Vahouny points to T-Mobile, Home Depot, JP Morgan as being particularly adept. She also pointed to the important role communicators can play in shareholder relations.
Preparing for tough times ahead
According to the Congressional Budget Office, the economic impact of COVID-19 could last a decade. The ongoing fallout is calamitous, but the pandemic is forcing companies to innovate, refocus and get creative.
Vahouny offers this advice to stay relevant during these difficult times:
- Follow investor calls, news releases and info about competitors.
- Monitor KPIs and trends.
- Expand your horizons. How are other orgs outside your industry surviving?
- Review what other comms and PR pros are doing. Share ideas, sources and resources.
“We must find ways to make ourselves more valuable as counselors, idea sharers and realistic businesspeople,” Vahouny says, adding that communicators must be bold enough to help senior leaders navigate tough times ahead. “Even in the pandemic, there will be opportunities—but you might have to shift your mission,” she says.
The future will belong to those who are prepared, flexible and willing to take chances—and, perhaps, those who are willing to learn something new.
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