Accountants play a pivotal role in improving their organizations’ financial and operational performance by helping key decision-makers understand the nuances of ongoing business activities. Using both quantitative and qualitative financial information, accountants create detailed reports and recommendations that guide investments, capital management strategies and organizational goals. As accountants advance their career, they often look for new opportunities to leverage their knowledge, skills and experience to greater effect. While being a public accountant might be appealing for some, there are plenty of other career paths available, including managerial accounting. But what is managerial accounting and how can aspiring professionals prepare themselves to take on this role?
Managerial accounting: Definition
Managerial accounting is the process of “identification, measurement, analysis, and interpretation of accounting information” that helps business leaders make sound financial decisions and efficiently manage their daily operations, according to the Corporate Finance Institute. Unlike other branches of accounting, this role is focused on internal data gathering and reporting, meaning professionals do not typically work with or advise external clients. Instead, managerial accountants focus on understanding their company’s cash flows, financial transactions, operating costs and internal rate of return. Once collected and analyzed, this accounting information is translated into reports and presentations that inform capital budgeting decisions and future investments.
Since managerial accountants are not client-facing, they can make use of analysis and reporting techniques that may fall outside traditional accounting standards, such as the generally accepted accounting principles (GAAP). This allows them to tailor their findings in ways that meet different end-user needs without worrying about regulatory compliance. For example, a managerial accountant may be asked to chart expenditures in a graph format by one department, and to translate this financial information into percentages by another. Not only does this flexibility enable more granular and actionable financial reporting, but it can also help optimize product costing, budgeting and forecasting activities.
Key managerial accounting skills and techniques
Managerial accountants utilize a wide variety of technical skills and analysis techniques to create accurate financial statements, forecast future expenses and identify cost-saving opportunities. Using key performance indicators as benchmarks, they conduct in-depth financial investigations into every facet of their company’s operations, from the costs of goods sold to its net present value. According to the Association of International Certified Professional Accountants, individuals in this role may be responsible for the following work duties:
- Evaluating and managing financial risks.
- Analyzing the cost of products or services.
- Modeling and forecasting cash flows.
- Advising business leaders on mergers and acquisitions.
- Formulating evidence-based financial strategies.
- Conducting cost and margin analysis.
Since every business has different operational needs and financial constraints, no two managerial accounting positions will be completely identical. For example, professionals working for a manufacturing firm may focus on supply chain costs and production expenses, while those in the retail industry are more concerned with inventory valuation. Regardless of their employer, managerial accountants rely on similar skills and techniques, including:
- Margin analysis: Even when internal and external factors are known, companies’ gross margins will fluctuate over time. Margin analysis helps business leaders understand what’s driving profitability and where inefficiencies may be leading to wasted spending. This technique can also provide actionable insights into how small changes in product pricing, production workflows and staffing can influence a business’s overall profitability, according to Investopedia. By analyzing the projected costs and estimated benefits of specific investments, managerial accountants can formulate financial strategies that align with their company’s long-term goals.
- Capital budgeting: Before companies undertake a new investment or project, they first need to ensure that it will deliver profitable results. Managerial accountants utilize capital budgeting to assess the potential cash inflows and outflows of specific business decisions. For example, if a manufacturer was planning to open a new production facility, they would first need to determine the total cost of the project and the expected ROI. According to Investopedia, common metrics used in capital budgeting include discounted cash flow, net present value and internal rate of return.
- Trend analysis: Forecasting revenue, profits and capital expenditures is a core part of managing a business’s financial operations, which is why managerial accountants keep a close watch on market conditions and cost-related trends. As noted by the CFA Institute, the goal of this accounting technique is to track companies’ historical performance and growth over a specific period of time to help inform future decisions. Without a forward-looking financial management framework, businesses would struggle to adapt to new opportunities and constraints in their market.
Advance your accounting career with a MAcc from the University of Nevada, Reno
If you’re interested in pursuing a managerial accounting career, the online Master of Accountancy program at the University of Nevada, Reno can help you assemble the knowledge, skills and experience you need to excel. This MAcc degree is designed to both reinforce accounting fundamentals and educate students about complex financial reporting techniques, including cost accounting, margin analysis and capital budgeting.