Back to Professional Development Blog

4 Financial Concepts Every Manager Should Know

Economist Bruce Watson explains four financial concepts that will help any manager better understand how all companies function.

4/16/2014 | Leadership and Management | 2 minute read

Picture of Harvard Professional Development
Written By:
Harvard Professional Development

When you understand a company's functioning, you are in a better position to succeed in either a vertical or horizontal career move. With these conceptual tools, you will be able to visualize how finance and capital acquisition activities have an impact on your organization.

Present Discounted Value (PDV)

Fact: $1,000 today is worth more than $1,000 in five years. Why? The $1,000 today has five years of interest-earning potential that the latter lacks. The present discounted value (PDV) is the current value of a future sum of money, taking into account a specified rate of return.

A business can use PDV to determine how much to pay for an investment today if that investment will produce a certain cash flow in the future.

Net Present Value (NPV)

How can a business figure out whether a new project is financially feasible? Calculating net present value (NPV) can lend some insight.

NPV compares the initial costs of a project with the total value of future revenue from that project. Because the future revenue is worth a different amount than if that revenue were earned today, a discount rate is applied to the future revenue, allowing the business to compare the future revenue to alternative investments today.

Structure & Function of Major Financial Markets

Watson exhorts managers to take the time to understand how major financial markets work. With this knowledge, managers can better understand the financial decisions that executives are making to position the company for success.

Investopedia has a thorough introduction to the wide range of financial markets.

Risk Management

A key component of investment decisions is the risk involved. Companies identify and analyze the risks associated with an investment before deciding whether to proceed. They then decide how to handle those risks, depending on the company’s investment objectives and risk tolerance.

Stay Up to Date with Harvard Professional Development

Subscribe to our blog and we'll alert you when we have a new post about one of our business topics from leadership to innovation.

You May Also Like

A Checklist for Building High-Performing Teams Leadership and Management

A Checklist for Building High-Performing Teams

To build high-performing teams today, managers must have a comprehensive understanding of the gaps they're trying to fill for...

6/24/2016 | 2 minute read

L&D for Middle Managers: Finding the Right Programs Leadership and Management

L&D for Middle Managers: Finding the Right Programs

Middle managers are often the linchpins of an organization, relaying messages and communicating goals between executives and ...

4/26/2019 | 6 minute read

How Self-Awareness Makes You a Better Manager Leadership and Management

How Self-Awareness Makes You a Better Manager

Becoming a truly effective manager requires a great deal of self-reflection, observation, and growth.

3/08/2016 | 4 minute read