Financial Intelligence : A Manager's Guide to Knowing What the Numbers Really Mean

by Berman, Karen

• ISBN13: 9781591397649
• ISBN10: 1591397642
• Format: Hardcover
• Copyright: 2005-12-07
• Publisher: Harvard Business School Pr

Summary

Companies expect managers to use financial data to allocate resources and run their departments. But many managers can't read a balance sheet, wouldn't recognize a liquidity ratio, and don't know how to calculate return on investment. Worse, they don't have any idea where the numbers come from or how reliable they really are.In Financial Intelligence, Karen Berman and Joe Knight teach the basics of finance-but with a twist. Financial reporting, they argue, is as much art as science. Since nobody can quantify everything, accountants always rely on estimates, assumptions, and judgment calls. Savvy managers need to know how those sources of possible bias can affect the financials-and they need to know that sometimes the numbers can be challenged.While providing the foundation for a deep understanding of the financial side of business, the book also arms managers with practical strategies for improving their companies' performance-strategies such as "managing the balance sheet" that are well understood by financial professionals but rarely shared with their nonfinancial colleagues.Accessible, jargon-free, and filled with entertaining stories of real companies, Financial Intelligence will help nonfinancial managers be smarter and more confident in their everyday work.

Table of Contents

Preface: What is Financial Intelligence?	xi
PART ONE THE ART OF FINANCE (AND WHY IT MATTERS)
You Can't Always Trust the Numbers	3	(7)
Spotting Assumptions, Estimates, and Biases	10	(8)
Why Increase Your Financial Intelligence?	18	(15)
Part One Toolbox	28	(5)
PART TWO THE (MANY) PECULIARITIES OF THE INCOME STATEMENT
Profit Is an Estimate	33	(5)
Cracking the Code of the Income Statement	38	(8)
Revenue: The Issue Is Recognition	46	(6)
Costs and Expenses: No Hard-and-Fast Rules	52	(12)
The Many Forms of Profit	64	(11)
Part Two Toolbox	70	(5)
PART THREE THE BALANCE SHEET REVEALS THE MOST
Understanding Balance Sheet Basics	75	(7)
Assets: More Estimates and Assumptions (Except for Cash)	82	(11)
On the Other Side: Liabilities and Equity	93	(6)
Why the Balance Sheet Balances	99	(3)
The Income Statement Affects the Balance Sheet	102	(11)
Part Three Toolbox	108	(5)
PART FOUR CASH IS KING
Cash Is a Reality Check	113	(4)
Profit ≠ Cash (And You Need Both)	117	(7)
The Language of Cash Flow	124	(4)
How Cash Connects with Everything Else	128	(9)
Why Cash Matters	137	(8)
Part Four Toolbox	141	(4)
PART FIVE RATIOS: LEARNING WHAT THE NUMBERS ARE REALLY TELLING YOU
The Power of Ratios	145	(6)
Profitability Ratios: The Higher the Better (Mostly)	151	(7)
Leverage Ratios: The Balancing Act	158	(4)
Liquidity Ratios: Can We Pay Our Bills?	162	(3)
Efficiency Ratios: Making the Most of Your Assets	165	(12)
Part Five Toolbox	171	(6)
PART SIX HOW TO CALCULATE (AND REALLY UNDERSTAND) RETURN ON INVESTMENT
The Building Blocks of ROI	177	(7)
Figuring ROI: The Nitty-Gritty	184	(15)
Part Six Toolbox	195	(4)
PART SEVEN APPLIED FINANCIAL INTELLIGENCE: WORKING CAPITAL MANAGEMENT
The Magic of Managing the Balance Sheet	199	(4)
Your Balance Sheet Levers	203	(6)
Homing In on Cash Conversion	209	(8)
Part Seven Toolbox	214	(3)
PART EIGHT CREATING A FINANCIALLY INTELLIGENT DEPARTMENT (AND ORGANIZATION)
Financial Literacy and Corporate Performance	217	(6)
Financial Literacy Strategies	223	(5)
Financial Transparency: Our Ultimate Goal	228	(5)
Part Eight Toolbox	230	(3)
Appendix: Sample Financials	233	(4)
Notes	237	(2)
Acknowledgments	239	(4)
Index	243	(14)
About the Authors	257