A Manager's Guide to Financial Intelligence, 2013 Edition

A Manager's Guide to Financial Intelligence, 2013 Edition

Authors : KAREN BERMAN, JOE KNIGHT with JOHN CASE
HARVARD BUSINESS REVIEW PRESS

Fundamentally, financial intelligence boils down to four distinct skill sets, and when you finish the book, you should be competent in all of them. They are:
• Understanding the foundation. Managers who are financially intelligent understand the basics of financial measurement. They can read an income statement, a balance sheet, and a cash flow statement. They know the difference between profit and cash. They understand why the balance sheet balances. The numbers neither scare nor mystify them.
• Understanding the art. Finance and accounting are an art as well as a science. The two disciplines must try to quantify what can’t always be quantified, and so must rely on rules, estimates, and assumptions. Financially intelligent managers are able to identify where the artful aspects of finance have been applied to the numbers, and they know how applying them differently might lead to different conclusions. They thus are prepared to question and challenge the numbers when appropriate.
• Understanding analysis. Once you have the foundation and an appreciation of the art of finance, you can use the information to analyze the numbers in greater depth. Financially intelligent managers don’t shrink from ratios, return on investment (ROI) analysis, and the like. They use these analyses to inform their decisions, and they make better decisions for doing so.
• Understanding the big picture. Finally, although we teach finance, and although we think that everyone should understand the numbers side of business, we are equally firm in our belief that numbers can’t and don’t tell the whole story. A business’s financial results must always be understood in context—that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations, changing customer needs and expectations, and new technologies all affect how you should interpret numbers and make decisions.