Understanding the Financials—and What Lies Behind Them

Managers in every business are expected to use financial data to make decisions, allocate resources, and budget expenses. But the truth is, many are uncomfortable applying the most basic financial tools in their day-to-day work. Even managers who consider themselves financially savvy may not understand what goes into a financial statement, and so may take the numbers as gospel when they should be questioning them.

In Financial Intelligence, Karen Berman and Joe Knight present the essentials of finance, but with an extra dimension. Succinct, easy-to-read chapters teach the fundamentals in a way that everyone can understand and put to work right away. But the authors also take you behind the scenes, to show where the numbers come from. Since nobody can quantify everything, accountants and finance executives always rely on estimates, assumptions, and judgment calls, which can skew the numbers in one direction or another. This book helps you recognize and understand those biases, challenge or correct for them when necessary, and use this information to be a better manager.

Based on their work training tens of thousands of managers and employees at many leading organizations, Berman and Knight provide readers with a deep understanding of:

The basics of financial measurement: reading income statements, balance sheets, cash flow statements, and moreThe art of finance: separating hard data from assumptions and estimatesThe mechanics of analysis: calculating ratios, return on investment, and working capitalCash and profit: knowing the difference between them, and why cash is suddenly the "hot" number in corporate boardrooms and on Wall StreetFinancial literacy and transparency: recognizing how they can boost performance

Accessible, jargon-free, and filled with entertaining stories from real companies, Financial Intelligence will help nonfinancial managers add substantially more to their companies’—and their own—success. If you have ever wanted to "talk numbers" confidently with your colleagues, this is the book for you.

I bought this book in order to better understand financial statements and financial ratios for investing, even though the authors wrote it more for managers and not investors. Other books I have purchased for this purpose usually fell into one of three categories: the book defined only the very basics and took such a simple approach with regards to interpreting statements it was a waste of time, the book was for professionals and so far advanced that it didn't bother to have a helpful introduction, or the book started slowly and did a good job at the beginning but then went into overdrive with few explanations after a good introduction and I ended up getting lost.

"Financial Intelligence" is by far the best book from start to finish on interpreting financial statements, what they mean, and how they apply to business that I have read. In the first part of the book, the authors take the reader slowly through each type of statement (income, balance sheet, and cash flow), what the different categories mean on each sheet, and give examples of what these numbers actually mean. Sunbeam, Enron, and Worlcom are used throughout the book as examples where numbers can be fudged or hints of abuse could have been detected ahead of time. The authors continue this dissection further by showing the different financial ratios derived from the statements, what they mean, and how they can be used as indicators of how a business is doing. The last part of the book then deals with how a business actually functions and its realtion to the statments; it shows how a company can show a profit but still go broke, how cash flows are "king", and what working capital is and the cycle it goes through. Again, very good examples are given durng each topic so that the reader can get a good handle on the subject. The only section that seemed out of place was how managers can discount cash flows to try and determine the return on projects; this subject would have been better in a true corporate finance book.

Overall, this is by far the best, simplest book I have read on financial statements and how to interpret them. The things that sets it apart from the others is the straightforward, easy writing style and the great examples given to demonstrate each accounting concept. The best thing is not only did I finally understand the statements and how they are interconnected, but I gained a better understanding of what makes a good company with respect to generating cash and managing inventories. This is a great book for beginners; if you do have trouble with it, try working the Schaum books on financial statements first and then come back.

I got this book for a leadership course and was surprised that I learned a lot about my own finances, stocks, etc. A quick and easy way to learn about finance. I would recommend for anyone that has to look at financial statements for any reason.

I would highly recommend this book to anyone who desires to understand financial concepts. If you are considering opening or starting a business this should be a must read for you.

I like the book, but it is very basic. If that is what you are looking for, then it does its job. I was looking for a little more meat, but overall a good book. Also, the real-life examples are excellent.

The concepts are presented clearly. I have a solid background in accounting and finance and this was a welcome refresher. I learned some new things in the process as well.

There are several chapters that I think need further elaboration. These are the ones that deal with cash flows and the Statement of Cash Flows. The latter is the last of the four financial statements (after the Income Statement, the Statement of Retained Earnings, and the Balance Sheet, in that order).

The Statement of Cash Flows has always been the most difficult one to prepare and, yet, in one sense, it is probably the most important one. Managers have leeway to fudge their numbers with the first three statements but they can't with the Statement of Cash Flows. Analysts recognize this and make significant conclusions from their interpretation of this statement.

Warren Buffett, arguably history's most astute investor, begins with this statement and emphasizes it so much that he coined his own term to describe it: "Owner Earnings." According to the book, "Owner earnings is a measure of the company's ability to generate cash over a period of time. ... is an important measure because it allows for the continuing capital expenditure that will be necessary to maintain a healthy business."

Read it if you want a layman's level of comprehending financial statements. Its more important than you might think!