CERTIFICATION VS CAPABILITY: What Really Matters in Corporate Finance
INTRODUCTION
One of the most debated questions in corporate finance which keep coming back is the one between certifications and real ability. Every year, thousands of students and young professionals make the decision to invest a lot in obtaining various finance, certifications thinking that these credentials will be the key to unlock better roles, faster growth, and higher salaries. The reasoning behind it seems very simple. Corporate finance is technical, certifications are technical, so more certifications should result in better outcomes.
However, the truth which is inside finance teams is different and more complex. There are quite a number of certified candidates who find it difficult in interviews and do not perform well after they are hired, whereas there are others who have fewer formal qualifications but develop quickly and get the trust of their managers early in their careers. This gap between the two groups leads to the questioning of what really matters more in corporate finance: certifications or capability?
This blog is not arguing that certifications have no use whatsoever. It neither praises raw talent nor informal learning. It simply looks at how corporate finance functions, what employers are looking for without telling, and why capability is often more than enough to get you through the next stage after the resume screen.
THE RISE OF CERTIFICATIONS IN CORPORATE FINANCE
The rise of finance certifications in the first place was not a matter of chance. Over the last ten years, the number of candidates for corporate finance positions has increased substantially, especially for those with fresh and junior, level experience. Hence, MBA programs, online courses, and professional institutes have structured finance knowledge into certification programs to keep up with the industry demand and be job, ready.
For students and young professionals, certifications mean understanding in a very confusing environment. They deliver a curriculum, a timeline, and a quantifiable outcome. To pass an exam feels like making progress. To add a credential to a CV feels like a source of comfort, particularly when friends are doing the same.
Besides, signaling is also involved. Certifications give the impression that the holder is serious and has discipline. Thus, they imply that the candidate has devoted time and effort to understanding finance concepts, which can influence the decision of a recruiter going through hundreds of resumes. In this way, certifications help to identify the most suitable candidates, who will later be judged by other means.
WHAT CERTIFICATIONS ACTUALLY CONTRIBUTE
When they work most effectively, certifications offer an essential framework. They bring in an orderly manner financial statements, valuation frameworks, forecasting methods, and basic modeling concepts. This framework can be very handy for a complete beginner or someone who is making a transition into finance from another discipline.
Moreover, certifications assist in language standardization. They impart commonly accepted definitions and frameworks which facilitate communication within finance teams. Understanding how professionals define cash flow, working capital, or return on investment helps to eliminate the early stages of friction and confusion.
Nevertheless, these advantages have their limitations which are seldom acknowledged. The majority of certification programs are structured in a manner that allows them to be scalable and examinable. Hence, they concentrate on being clear, repeatable, and subject to assessment rather than being ambiguous, requiring judgment, and taking context into consideration. The sad part is that corporate finance is very much dependent on these complicated elements.
THE LIMITS OF CERTIFICATION-BASED LEARNING
Certification learning typically has a major disadvantage in the way learning does not include true complexity of business. While examinations reward the correct response to specific questions the questions used in businesses typically do not have a simple question and one specific answer. When providing Financial advice, Businesses will use their "best guess" based upon an incomplete amount of information, they will be working under tight deadlines to provide their recommendations and will be operating with competing incentives.
Certificated candidates generally are familiar with definitions, formulas and methods used, however they are often challenged with situations where the methods are ineffective. When developing financial models, many of the assumptions used in developing these models may not be valid or consistent with the actual results produced in the market.
Second, certifications separate finance and businesses. In essence, a certification provides a number that indicates revenue is generated, but does not acknowledge the underlying behaviour of the customer in generating that revenue. Similarly, the certification only categorizes the cost associated with doing business as a category or classification, rather than the operational and political complications.
Certifications and the clarity that goes along with them can only be described as a beginning point, as to when capability will take precedent over credentials. I find it reasonable to say that the experience gained in the finance profession by candidate/individuals is what leads to the acquisition of proficiency.
DEFINING CAPABILITY IN CORPORATE FINANCE
A person who has capability in corporate finance doesn’t just have a lot of theory about finance, but actually uses this knowledge to solve problems with real-world applications. A capable
finance professional will be able to take incomplete or 'bad' financial data and determine what information is important so that managers can make better decisions regarding their business.
Capability in corporate finance has several dimensions, and will encompass more than just technical skills; it also will include professionalism, effective and clear communication skills, and an understanding of how to apply the technical knowledge in relation to the company's goals or vision. Capability in corporate finance does not show up in exam grades, but rather, in the manager's ability to be flexible when something occurs that was unexpected. They will know how to adjust to the changing environment of a business.
From a practical perspective, capability in corporate finance simply provides an answer to the following significant question: can this person help us understand the numbers of the business?
TECHNICAL SKILL IS ONLY THE STARTING POINT
In corporate finance, while having strong technical skills is essential, by itself it is not usually enough. Understanding how to create a financial model is somewhat necessary, but it is more important to understand what it is trying to accomplish and how it can be used.
A good finance professional will understand that models are meant to be used as tools, not as "truths." The finance professional will know which assumptions drive outcomes and which are masking the impact of other inputs. When precision is needed, a finance professional will exhibit that characteristic; when a general direction is sufficient, the finance professional will be able to articulate that as well. This type of understanding cannot be tested easily through the use of standardized examinations.
Most importantly, good finance professionals will also have the ability to adapt. When the inputs change or when there is a decline in data quality, the finance professional will change their method of approach to reflect this rather than maintaining a rigid template-like approach. This flexibility of approach is the main differentiator between operational finance professionals and academic finance professionals.
TECHNICAL SKILL IS ONLY THE STARTING POINT
In corporate finance, while having strong technical skills is essential, by itself it is not usually enough. Understanding how to create a financial model is somewhat necessary, but it is more important to understand what it is trying to accomplish and how it can be used.
A good finance professional will understand that models are meant to be used as tools, not as "truths." The finance professional will know which assumptions drive outcomes and which are masking the impact of other inputs. When precision is needed, a finance professional will exhibit that characteristic; when a general direction is sufficient, the finance professional will be able to articulate that as well. This type of understanding cannot be tested easily through the use of standardized examinations.
Most importantly, good finance professionals will also have the ability to adapt. When the inputs change or when there is a decline in data quality, the finance professional will change their method of approach to reflect this rather than maintaining a rigid template-like approach. This flexibility of approach is the main differentiator between operational finance professionals and academic finance professionals.
BUSINESS CONTEXT AS A CORE FINANCE SKILL
Corporate finance is closely linked to other aspects of business and is driven by the decisions and behaviours of the company, such as the sales that are made, which determines the quality of the revenue generated; however, those decisions also drive cost behaviour due to operational inefficiency; further, the compensation structure of executives will drive their forecasting behaviours.
To be capable means understanding those relationships. A capable financial analyst does not simply identify a decrease in margin; rather, they will investigate if the margin decreased due to pricing, volume, mix, or cost behaviours. Financial results are the symptoms of a company’s business activities, rather than the causes.
Most certification programmes do not require that participants apply in-depth analysis to understand those drivers of business activity. Most certification programmes require calculation of financial data and outputs rather than an analysis of the underlying behavioural factors associated with the data and outputs. Therefore, although candidates who receive certification may be able to calculate the movement of financial numbers, they will have a difficult time explaining the reasons for the movement.
JUDGMENT AND DECISION SUPPORT
Corporate finance serves as a decision-making tool, which means it needs more than just calculations; it requires a judgment-based approach. A finance team must provide guidance to the executive level by identifying trade-offs, assessing risks, and constructing alternatives.
A person's ability to deal with uncertainty is indicative of their ability to do their job well. People who are able to use their judgement to make decisions based on experience are better able to provide guidance to others than those who rely exclusively on their analytical capabilities for insights into the future.
To enhance one's ability to develop good judgement, one must be exposed to and reflect upon many different situations and experiences. Asking "what if" questions is a more effective way to build judgement than to rely on certifications, which do little to help build good judgement.
COMMUNICATION AS A DIFFERENTIATOR
Communication is an important element of a finance professional's service, but it is often overlooked. While a finance professional must generally work with numbers more often than not, they will spend more time communicating what they calculate than in doing calculations. Also, finance professionals do not usually speak to everyone that they work with in their jobs, and some of those that they work with (Such as sales and marketing or operations manager's) will not be familiar with finance terminology.
The ability to communicate clearly and concisely is the reason why capability exists. Therefore, it is essential that analysts understand how to present their thoughts, opinions, or ideas about financial results to others in a manner that encourages them to make decisions, as opposed to creating confusion about the results.
Most certification programs have placed little or no emphasis on an applicant's ability to tell a story or create a narrative that clearly reflects their understanding of the financial concepts. Therefore, it is common for candidates that have earned financial certification to find themselves in interviews or meetings with prospective employers, and the hiring manager has no idea how well the candidate has performed or would perform as a finance professional.
WHY CAPABILITY DOMINATES IN INTERVIEWS AND ON THE JOB
In the field of Corporate Finance, interviews are not about the extent of a candidate's syllabus; rather, they serve to reduce risk. Employers need to determine if the candidate is capable of dealing with an ambiguous environment, able to learn quickly, and capable of delivering value without ongoing supervision.
Capability is visible when candidates articulate their thought processes; merely discussing what they know will not display capability. Interviewers want to hear that candidates have logical, structured, and realistic thoughts and are able to relate numbers to business results.
Capable professionals rapidly build trust on the job due to the fact that they avoid as many mistakes, ask more thoughtful questions, and are able to adapt more quickly than others, ultimately creating a level of trust that is far more valuable than the certificates on their resumes.
THE HIDDEN COST OF CHASING CREDENTIALS
Opportunity cost is one aspect of certification that is often not considered. The time spent studying for exams can divert time away from performing real analysis, analyzing companies and acquiring judgment.
When no time has been spent practicing, all that has been learned becomes a theoretical exercise. As such, one may have a sense of preparedness for the exam, but when open-ended problems arise, they become stressful.
Certifications should not be eliminated but rather combined with practical application of what has been learned. By utilizing both, candidates will receive the benefit of both kinds of learning.
WHEN CERTIFICATIONS ADD REAL VALUE
Certifications help ensure a candidate's competencies and can help in the following ways: provide new starters with structure; provide new career changers with credibility; and provide specialists with knowledge of specific roles.
To obtain the greatest benefit from certification, the candidate must have the proper mindset in relation to it. The best certifications to pursue should be based on a candidate's needs, i.e. their current skill set and their professional development goals, and not based on the fear of failing a certification exam.
Integrating certifications with practical work, reflection and practicing communication skills can enhance and speed up the candidate's professional development rather than distract from it.
CERTIFICATION AND CAPABILITY ARE NOT OPPOSITES
The most successful people in finance recognize that while certifications have value, they do not depend solely on them. A successful finance professional recognizes that the ability to successfully captivate clients, assess a company's performance and make sound recommendations based on both an understanding of the present and projections of the future is the key to lasting success. To grow in the corporate finance, you must have a reputation for your trustworthiness and sound judgment, along with the ability to adapt as a financial professional. Certifications may signal potential, but developing the capability to actualize that potential will show clients that you are capable of generating results.
CONCLUSION: WHAT REALLY MATTERS IN CORPORATE FINANCE
In many ways, the debate regarding certification versus capability is based on a misunderstanding regarding one critical factor – how long will either certification or capability provide you with a competitive advantage? While certifications give you some indication of your potential for short-term success, they do not provide an indication of your long-term ability to build on your capabilities, as they are temporary in nature. Capability is an indicator of your long-term career success.
In corporate finance, certification provides short-term career leverage, while capability provides long-term career leverage. Certification may help you get a foot in the door, but your capability will determine how far your voice carries once you are inside the door.
Professional development opportunities for anyone interested in developing their career in corporate finance should be focused on building the ability to think, explain, and decide using numbers. This capability is the main thing companies will pay you to accomplish.