Many scientists and engineers I’ve worked with have expressed frustration at not being able to have the kind of influence they want over the strategic directions of the companies in which they work. Oftentimes they feel their perspectives are being dismissed, particularly in discussions with colleagues in other functions.
But in the wise words of a mentor of mine, ‘if you want business people to listen to you, you have to be able to speak in a language they will understand.’ That language is, by and large, the language of finance. If you can frame the opportunities you see in language that your non-scientific colleagues can easily understand (and then explain to the board of directors), your ideas are much more likely to gain traction.
Similarly, scientific leaders will be better equipped to identify and prioritize scientific programs and investments if they can connect the dots between technical advancements and the ever-important bottom line (which, it turns out, refers to an actual line in the income statement!).
So my hope is that when armed with a little better financial intelligence, scientists and engineers can start to bridge the gap between the technical aspects of our business and the business end of the business.
Of course, I myself am one of these scientists. And so a big part of why I am writing this series is to force myself to dig deeper into some of the learnings I have gleaned from books, podcasts, and articles along the way (including frantically looking up terms like GAAP and EBIDTA during earnings calls and executive meetings). By virtue of my scientific background, hopefully the language I use throughout this series will be a little less opaque and a little more understandable for those of us who are more likely to be reading Nature articles than the Economist.
Specifically, in this mini-series, we will cover:
- Some basics on financial statements
- The big three financial statements (and their component parts):
- the income statement
- the balance sheet
- the cash flow statement
- Key ratios or evaluating the financial health of a business
- Numbers investors care about and why
- How to understand whether a new project/investment has (financial) merit through Net Present Value
To start, a couple references and an important acknowledgement. My initial foray into the wonderful world of finance was inspired by my friend Jeff Krimmel’s frequent LinkedIn posts on business and strategy in the energy sector. Jeff and I met as PhD students at Caltech, and I have been awed by his seamless transition from hardcore engineering to business and strategy, and am always impressed by his insightful discourse. I highly recommend checking out Jeff on LinkedIn and perusing his mini-course on Energy Finance. You’ll notice that this course closely mimics his course in places (with his blessing).
Another important source here is the book, Financial Intelligence. A Manager’s Guide to Knowing What the Numbers Really Mean, by Karen Berman and Joe Knight. It’s a great read and has many details that I won’t cover in this series.
In any case, I hope you enjoy! I would love to hear your questions, thoughts, and comments along the journey. And if you are really keen, join my mailing list so you don’t miss the future installments of this series.