Chemical engineers know about many important topics, but life insurance might not be one of them. Fortunately, you can easily learn the basics about life insurance.
Billy Novak and I spoke about personal finance at this year's AIChE Student Conference. Following are a few financial basics and some tips to help students better plan their financial future.
Most engineers I knew in my MBA program went into finance. It’s not too surprising: you need to be analytical and highly skilled in Excel. Our academic cousins in Physics were applying differential equations at Long Term Capital Management (the case study for “math gone wrong”) and prior to the housing crisis Wall Street was even hiring engineers without their MBAs (article). But there is a difference between finance for the Street and the finance used to drive operations. We’ll focus on the latter and how it ties into our fundamental building block for ChE: The Material & Energy Balance.
Whether getting in or getting out, successful business level transactions are dependent upon an accurate and insightful valuation of the business, its assets, income capabilities, and the business's place in the market. On Tuesday, Clinton Bogart, VP of the Industrial Valuation and Advisory Services group at CB Richard Ellis, presented the tools and techniques that have brought him and his company to a leadership position in the field.
Tax decisions can affect chemical engineers as they take their projects from the lab to the field. Learn more about how you can learn to make wise tax-related decisions that will please your boss and bolster your project's success.
Why does your bo$$ talk about things like inventory control when he asks you about operating costs? Inventory is the aggregate of items that are either held for sale in the ordinary course of business, in the process of production for sale, or currently consumed in the production of goods or services to be available for sale in the future.
If you're a chemical engineer and want to discuss operating costs intelligently with your boss, you'll need to understand a number of financial concepts, including gross margin, cost of goods, depreciation, allocation, and capital investment.
In the last few posts, we’ve talked about various Financial Statements that companies are required by law to prepare and share with stockholders and government agencies. Your bo$$, of course, shows sensitivity to operating and production costs because he or she wants these Financial Statements to be favorable. In particular, in the last blog, we discussed Income Statements at length.
Do you think if a company shows a positive Net Income that they are free of all financial trouble?
A Cash Flow Statement, like the Income Statement, shows changes in money flow during a specific period of time: a month, quarter, or year, for example. (You’ll recall from an earlier post that the Balance Sheet is a snapshot in time, showing a “material balance” of Assets against Liabilities.) Cash Flow is easy to calculate.
Income Statements are often presented in many different formats. Two popular methods are the Traditional Income Statement, which is required by U.S. law for reporting to governments and stockholders, and the Contribution Margin Income Statement, which is used internally to help guide management decisions. Also, you will want to analyze the Income Statement both horizontally and vertically.
The cornerstone of a public company’s financial success is the annual report. Wall Street investors, stockholders, executives, and employees are all interested in periodic reports that present a snapshot view of the financial health of the organization, as well as trends of growth or improvement over time. Since these periodic reports tend to drive stock prices up or down, and since your boss’ bonus is based on the value of the company’s stock, he or she is of course interested in how your project will contribute to the bottom line!
Have you ever noticed that your boss uses a lot of phrases like the following?
* How much will it cost?
* What will our savings be?
* Show me the cost/benefit analysis.
* What is the budget for that project?
Yes, I know that your project has some really awesome technology and that you’ve got armloads of data sliced, diced, and statistically analyzed to the nth degree. You’ve sketched PFDs (Process Flow Diagrams) and created both kinetic AND thermodynamic models. But, there he sits across the desk, daring to ask seemingly trivial MONEY questions!