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architr's review against another edition
5.0
IMPORTANT NOTE -
Please don't this book if you have already read "Financial Intelligence - A Manager's Guide to knowing what the numbers really mean" (the authors have merely recycled the material from here).
Standout features:
1. Authors make the content interesting by highlighting many cases of financial shenanigans committed by various companies; by reading this, non-finance people will be more alive to the possibilities of frauds and other acts of deceit. And finance people will be able to relate to the rationale behind introducing various Accounting Standards on revenue recognition, leases etc.
2. Detailed breakdown of financial statements, ratios and finance operations.
Useful insights from the book:
1. Accounting and finance are not reality, they are a reflection of reality, and the accuracy of that reflection depends on the ability of accountants and finance professionals to make reasonable
assumptions and to calculate reasonable estimates.
2. Finance is an art as much as it is a science; the financial statements are prepared using assumptions, estimates and biases.
3. In a familiar phrase generally attributed to Peter Drucker, profit is the sovereign criterion of the
enterprise. The use of the word sovereign is right on the money.
4. Income statement - Creating income statements for smaller business units has provided
managers in large corporations with enormous insights into their financial performance.
General Motors had developed this divisional system. (this fact has been mentioned in the book Relevance Lost)
5. Accrual v/s Pro forma income statement - Pro forma is a projection whilst accrual is based on actual numbers
6. You can think of operating expenses as the cholesterol in a business. Good cholesterol makes you healthy, while bad cholesterol clogs your arteries. Good operating expenses make your business strong, and bad operating expenses drag down your bottom line and prevent you from taking advantage of business opportunities. (Another name for bad operating expenses is “unnecessary bureaucracy.”
7. Relationship between Balance Sheet and Income Statement:
What is this relationship? Consider an analogy. Profitability is sort of like the grade you receive for a course in college. You spend a semester writing papers and taking exams. At the end of the semester, the instructor tallies your performance and gives you an A- or a C+ or whatever. Equity is more like your overall grade point average (GPA). Your GPA always reflects your cumulative performance, but at only one point in time. Any one grade affects it, but doesn’t determine it. The income statement affects the balance sheet much the way an individual grade affects your GPA. Make a profit in any given period, and the equity on your balance sheet will show an increase. Lose
money, and it will show a decrease. Over time, the equity section of the balance sheet shows the accumulation of profits or losses left in the business; the line is called retained earnings (losses) or sometimes accumulated earnings (deficit).
8. Cash is not equal to profit. The ultimate lesson here is that companies need both profit and cash. They are different, and a healthy business requires both.
9. There are four categories of ratios that managers and other stakeholders in a business typically use to analyze the company’s performance: profitability, leverage, liquidity, and efficiency.
Each type of ratio provides a different view - like looking into a house through windows on all four sides.
10. There are many more golden nuggets!!
I do hope you find this review useful. Please let me know your reviews after reading the book. Thanks!
Please don't this book if you have already read "Financial Intelligence - A Manager's Guide to knowing what the numbers really mean" (the authors have merely recycled the material from here).
Standout features:
1. Authors make the content interesting by highlighting many cases of financial shenanigans committed by various companies; by reading this, non-finance people will be more alive to the possibilities of frauds and other acts of deceit. And finance people will be able to relate to the rationale behind introducing various Accounting Standards on revenue recognition, leases etc.
2. Detailed breakdown of financial statements, ratios and finance operations.
Useful insights from the book:
1. Accounting and finance are not reality, they are a reflection of reality, and the accuracy of that reflection depends on the ability of accountants and finance professionals to make reasonable
assumptions and to calculate reasonable estimates.
2. Finance is an art as much as it is a science; the financial statements are prepared using assumptions, estimates and biases.
3. In a familiar phrase generally attributed to Peter Drucker, profit is the sovereign criterion of the
enterprise. The use of the word sovereign is right on the money.
4. Income statement - Creating income statements for smaller business units has provided
managers in large corporations with enormous insights into their financial performance.
General Motors had developed this divisional system. (this fact has been mentioned in the book Relevance Lost)
5. Accrual v/s Pro forma income statement - Pro forma is a projection whilst accrual is based on actual numbers
6. You can think of operating expenses as the cholesterol in a business. Good cholesterol makes you healthy, while bad cholesterol clogs your arteries. Good operating expenses make your business strong, and bad operating expenses drag down your bottom line and prevent you from taking advantage of business opportunities. (Another name for bad operating expenses is “unnecessary bureaucracy.”
7. Relationship between Balance Sheet and Income Statement:
What is this relationship? Consider an analogy. Profitability is sort of like the grade you receive for a course in college. You spend a semester writing papers and taking exams. At the end of the semester, the instructor tallies your performance and gives you an A- or a C+ or whatever. Equity is more like your overall grade point average (GPA). Your GPA always reflects your cumulative performance, but at only one point in time. Any one grade affects it, but doesn’t determine it. The income statement affects the balance sheet much the way an individual grade affects your GPA. Make a profit in any given period, and the equity on your balance sheet will show an increase. Lose
money, and it will show a decrease. Over time, the equity section of the balance sheet shows the accumulation of profits or losses left in the business; the line is called retained earnings (losses) or sometimes accumulated earnings (deficit).
8. Cash is not equal to profit. The ultimate lesson here is that companies need both profit and cash. They are different, and a healthy business requires both.
9. There are four categories of ratios that managers and other stakeholders in a business typically use to analyze the company’s performance: profitability, leverage, liquidity, and efficiency.
Each type of ratio provides a different view - like looking into a house through windows on all four sides.
10. There are many more golden nuggets!!
I do hope you find this review useful. Please let me know your reviews after reading the book. Thanks!
blazus's review against another edition
5.0
Excellent introduction for non-financials people such as engineers, technicians etc.
racheldelaney's review against another edition
4.0
Even though I'm using this for a grad course and not an actual start-up, this book is something I'll keep on my shelf. My undergrad was in business so this was a great refresher tool, but above all else I enjoyed the tone. It's analytical but still practical.
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