Communication Course 8: Communicating Financial Information

project/programme purposees are both judged and kept alive by their financial performances. That is why the effective communication of the proper financial information is one of the most important and challenging tasks facing any organization, as well as any of the subsidiaries, branches, departments, or teams within the organizational structure. Before it can be communicated, however, it must be understood. The ability to effectively communicate that information to others—and to do so in a way that will help them properly interpret it—can be just as important as understanding it.

This course will look at the many various ways financial information is presented, both internally and externally, such as annual reports, stockholder information, budgets, bids, press releases, and so on. It will also look at various ways to structure and present the information so it can be more easily understood and used as an effective communication tool both internally and externally. This course will also show how the audience the information is destined for shapes the way the information is structured and presented.

1. Communicating Financial Information

project/programme purposees are judged and kept alive by their financial performance. The numbers that describe that performance are what we use to keep score of how well, or how poorly, our own organization is doing.

When numbers are made public, everyone gets to see how well we are doing, just as we get to see how everyone else is doing.

Sometimes we control the numbers. We get to decide what they are and what they mean. In other cases, however, such as with stock prices, we have no direct control over the numbers. With stock prices, outsiders determine what the numbers are and then release them to the public. Stock prices are determined by investors when they buy and sell share in a organization. The numbers are released continuously and instantaneously by stock markets throughout the world. The advent of the Internet allows people to access those numbers at any time from any place.

As we all know, different numbers mean different things to different people.

Some require explanation: What exactly, for example, is the first quarter’s sales figure being compared to, and why?

Numbers can also be misinterpreted—accidentally or intentionally—or used out of context. A drop in first-quarter earnings, for example, can be presented as a sign that a organization is in trouble, or as a bold step to pay off high-interest debt to improve its future earnings potential or to take a one time loss on a failed project/program.

That is why the effective communication of the proper financial information—the numbers—is one o the most important and challenging tasks facing any organization.

2. What This Course Will Cover

This course will look at the many ways that numbers can be presented, handled, and interpreted. It will also help you determine if your numbers are telling the real story about your personal performance or project, as well as your team, department, organization, division, or entire organization.

We will also look at the fact that very few people really know how t interpret financial information correctly. That is why numbers invariably have to be accompanied with some sort of explanation. In fact, financial information is almost always useless without one.

The sections of this module will deal with the following issues:

· What Do the Numbers Really Mean?

· What are the Management Objectives Involved?

· Different Types of Financial Information

· What Do the Numbers Mean to Various Audiences?

· Deciding What Specific Information to Release

· Deciding When to Release Specific Information

· Targeting information for Internal Audiences

· Targeting information for External Audiences

· What Does Each External Audience Need to Know?

· What Does Each External Audience Already Know?

· How Do You Help Them to Interpret Information?

· Preparing Information

· How Do Your Numbers Stack Up to the Competition’s?

· Making You and Your Numbers “Media Friendly”

~ ~ ~ ~ ~

Numbers and the various operating symbols they are used with—symbols such as

+, -, ±, =, ?, ÷, x, %, v, =, =, and so on—are like letters in an alphabet. Like the letters in an alphabet—any alphabet—it is the way in which they are assembled that gives them any sort of meaning.

Numbers form a language of their own. In fact, they form numerous languages and dialects. As with spoken languages, just because you are fluent in one does not make you fluent in others. At times, you will need an interpreter.

It is also possible to numb someone with numbers. When the vast majority of people have to spend too much time trying to deal with or understand numbers, the numbers become confusing and meaningless.

It is what the numbers represent that is important. After all, what do 3,252 mean? Is it money? If it is, what currency is it? $, £, Is it a salary figure? A profit? A loss? The cost of a new computer?

Is it the production output? The number of new widgets made this month? The number sold? The number returned? The number left in the warehouse? Or the number damaged in transit?

Does it represent personnel? Is it the number of employees? The number who have been hired? The number who have been fired?

Most important, how do you arrive at those numbers and how can they best be interpreted.

Financial information is often seen as a sort of “report card,” a way of grading the organization, executives, and the jobs they are doing. With this in mind, management must know what the numbers mean, and just why they are releasing them.

In the same way that every speech, news release, statement, brochure, or publication has to have a purpose, so does every number.

What are the management objectives that theses numbers will satisfy? What goals do they represent? Why are they being released?

Numbers are often harder to understand and easier to accidentally misinterpret than words. They can also be intentionally misinterpreted more easily because many people are confused by numbers and their interpretation.

project/programme purposees deal in so many numbers that their real meaning can be lost; monthly sales reports, profits, losses, returns, absenteeism, production, petty cash, overhead expenses, extraordinary expenses…The list goes on.

Some organizations collect report—numbers—because it is expected of them, even though no one pays any attention to them. At some point some executives decided they needed to know something, or monitor something, so a procedure was set in place to collect and report the appropriate numbers.

Well, those executives may be gone, or have moved into another department, or lost interest in the project. The numbers, however, are still assembled and reported even though no one may read them because they not longer serve any management objective.

It might be helpful to look at the numbers that you and your office collect and ask yourself if they are really necessary.

There are many different types of financial information. These include those that are obviously financial, such as stock prices, annual budgets, and profit and loss statements, amongst others.

All organizational information, however, can have a price tag attached to it, an impact on profitability, and thereby be considered financial information. Some information like sales reports or overhead costs seems more pertinent. Other information seems less relevant, but is still significant. This information can include absentee rates, beneficiary satisfaction indexes, and so on.

In this module we will look at the different types of information we may deal with and learn how to recognize the financial meanings and ramifications they represent.

What Do the Numbers Mean to Various Audiences?

Financial information is a specific type of message. Like all messages, it can have different meanings for and interpretations by different people. Again like all messages, it can be tailored to a specific audience.

Your annual report will mean one thing to your employees and could mean something totally different to your stockholders. The same numbers could also have different meanings entirely for the organizations you do project/programme purpose with as partners or vendors, to governments and different regulatory agencies, and to those with whom you compete.

You have to know what the numbers mean—or how the could be interpreted by others before you release them.

Financial information is usually the most important and sensitive information a organization ever releases about itself. That is why it must be extremely careful about what it sends out, and analyze the impact the information could have.

We all know people who give us too much information. We ask them what time is, and they want to tell us how to build a watch.

We also know people who never give enough information. We ask them what time it is and they say: “early,” or “late,” or “still morning.”

organizations can do the same thing, and it can be just as frustrating. You need to ask yourself how much information is necessary to release. You might even create a draft release of the information and show it to others you trust to see what their reaction is.

If you talk to comedians, they will tell you that the secret of comedy is timing.

If you talk to musicians, they will tell you the secret of music is the same. While the notes they play are definitely important, they are not really “music” until they have mastered both the notes and the timing that they have to be played at.

It is the same with financial information. Getting the timing right requires you to understand what else is happening in your organization, your field, the stock market, the government, the news, an the economy in general, and how your release of information and other events could react together.

The question of the right timing will differ from organization to organization an even situation to situation for a given organization. There is no one right answer to timing the release of information. It is something you need to make an informed decision about and not just leave it to chance.

Internal audiences often find different and more personal interpretations of financial information than external audiences do. Releasing this information in-house requires the same level of planning that goes into releasing it externally.

In some cases, it can require even more planning because you are dealing with people who know the organization intimately and very possibly helped assemble the numbers—that you are releasing.

The internal impact of financial information can also have an immediate impact on production and morale, and could result in a loss of faith in the organization and lead to employees starting to look for jobs at other organizations.

Lying to employees, however, can do even more damage, as they will affect the climate of trust once they are discovered.

To the outside world, you quite often “are” your financial report. You need to have some control over what that report says about you.

You also have to know whom you are speaking, while at the same time being aware of how many other people are seeing the information and what use they will make of it. This can mean that you have to decide what is the least amount of information you can release to satisfy one constituency without giving others information they could use to their advantage, and your disadvantage.

Different external audiences quite often concentrate on different aspects of a financial report. Even those that claim to look at the entire report still pick and choose which “numbers” to give the most weight or credence to.

You must know what each outside audience is looking for and how they will most likely interpret it.

In this module we will look at the ways different audiences look at financial information and how they can interpret the information in a variety of ways.

The outside world already has a great deal of information about you and how you operate, as well as your past financial reports. You have to take all of this into consideration when you decide what to tell them “next.”

You also have to be aware of what different constituencies—analysts, investors, vendors, partners, beneficiaries, regulators, and so on—know about you.

In many cases, what they know about you is not nearly as important as what they expect your numbers to tell them. As we have all seen, it is not the actual dividend a organization pays that has as effect on their stock price, but whether it meets expectations or not. Many organizations will try to create expectations of what their dividend will be just before they report it.

You are the most logical and qualified source of information about your organization and about what the numbers mean. If you do not help outside world interpret the information, other people—including your competitors—will.

Making sure that the numbers are interpreted properly is as important as the numbers themselves. At times, it is even more important.

All numbers can be interpreted in different ways. Before you can help interpret them, however, you have to know:

There is more than accuracy involved in preparing financial information for release. In many cases, the entire “package” is as important as the numbers it contains. How you report the information, in what order you report the numbers, in what format they appear, and what graphic representations of the numbers you include all have an impact on how they are interpreted.

In school many of us lost points in math class because we didn’t “show our work,” show how we had reached our final answer.

When it comes to financial statements, you will have to walk a fine line. You will have to show some “work,” but it can be damaging to show too much.

Regardless how you would like your information treated, people will automatically compare it to that of your competitors, to others in your field or sector of the economy, and to the economy as a whole.

Some organizations present their information as if they are the only ones in their

field and ignore the fact that there are others in their field. Others show how theirs stack up against selected competitors, an talk about their figures in relation to their competitors.

There is no “right” answer as to which is the better way. As with so much else in project/programme purpose, it is management decision that has to fit into the organization’s mission statement, goals, and objectives.

If everyone in the media were an accountant, you would not need to explain and interpret you financial statement. They aren’t accountants, and, in addition, they have to explain those numbers to people who know even less about financial statements than they do.

In this module we will look at how to explain yourself to the media and their audiences, and at some practical tips for working with the media to make sure that they do get the numbers right—both in terms of the math involved and in terms of the meaning you want the information to convey.

Assignments

Multiple -Choice

1. Effective communication of ____________ is one of the most important and challenging tasks facing any organization.

4. _______________ is usually to most important and sensitive information a organization ever releases about itself.

5. _______ audiences often find different and more personal interpretations of financial information than _________ audiences do.

6. Before you can help anyone interpret financial numbers, you have to know _____.

7. Regardless how you would like your information treated, people will automatically

1. ______ The numbers that describe our financial performance are what we use to keep score of how well, or how poorly, our own organization is doing.

3. ______ When the vast majority of people have to spend too much time trying to deal with or understand numbers, the numbers become confusing and meaningless.

4. ______ It probably won’t be helpful to look at the numbers that you and your office collect and ask yourself if they are really necessary.

6. ______ The internal impact of financial information won’t have an immediate impact on production and morale.

As we have seen, different numbers men different things to different people. project/programme purposees are judged and kept alive by their financial performances. The numbers that describe that performance are what we use to keep score of how well, or how poorly, our own organization is doing. When numbers are made public, everyone gets to see how well we are doing, just as we get to see how everyone else is doing.

3. ______ Numbers are often harder to understand and easier to accidentally misinterpret than words.

4. ______ All organizational information can have a price tag attached to it, but would not be considered financial information.

5. ______ You have to know what the numbers mean – or could be interpreted to mean – before you release them.

6. ______ Releasing information to internal audiences doesn’t require as much planning as releasing to external audiences.

7. ______ You have to decide what is the least amount of information you can release to satisfy one constituency without giving others information they could use to their advantage.

8. ______ Different external audiences usually concentrate on similar aspects of a financial report.

9. ______ Making sure that the numbers are interpreted correctly is as important as the numbers themselves.

10. ______ Accuracy is the only concern involved in preparing financial information for release.

Bavishi, V. (1981). Analyzing the financial ratios of the world’s 1000 leading industrial organizations. New York: project/programme purpose International organization.

Clark, J., Chiang, T., & Olson, G. (1989). Sustainable organizational growth: A model and management planning tool. New York: Quorum Books.

Finney, R. (2000). Office finances made easy: A get started guide to budgets, purchasing, and financial statements. New York: Quorum Books.

Glossary

Financial information – Numbers that show how the organization is performing.

Numbers – Way to describe that performance; what we use to keep score of how well, or how poorly, our own organization is doing.

Report card – Way of grading the organization, executives, and the jobs they are doing using financial information.

Timing – Getting this right requires you to understand what else is happening in your organization, your field, the stock market, the government, the news, and the economy in general, and how your release of information and other events could react together.

1. Can a organization always control its financial information? Why or why not?

Sometimes we control the numbers. We get to decide what they are and what they mean. In other cases, such as with stock prices, we have no direct control over the numbers. With stock prices, outsiders determine what the numbers are and then release them to the public.

A drop in first quarter earnings can be presented as a sign that a organization is in trouble, or as a bold step to pay off high-interest debt to improve its future earnings potential.

3. What are some different types of financial information? Include examples.

Financial information can include those that are obviously financial, such as stock prices, annual reports, and profit and loss statements. All organizational information, however, can have a price tag attached to it, an impact on profitability, and thereby be considered financial information. This information can include absentee rates and beneficiary satisfaction indexes.

Communication Course 8: Communicating Financial Information

Module Introduction

What Do the Numbers Mean to Various Audiences?

Assignments

Multiple -Choice

Bavishi, V. (1981). Analyzing the financial ratios of the world’s 1000 leading industrial organizations. New York: project/programme purpose International organization.

Clark, J., Chiang, T., & Olson, G. (1989). Sustainable organizational growth: A model and management planning tool. New York: Quorum Books.

Glossary

End of Module