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Financial Intelligence: A Managers Guide to Knowing What the Numbers…
Financial Intelligence: A Managers Guide to Knowing What the Numbers Really Mean
What is financial intelligence???
Everyone does better when they understand how success is measured and their impact on performance, makes people feel more involved, trust increases, turnover decreases, and financial results improve.
Four Distinct Skillsets:
2.
3.
1. Understanding the Foundations
Understands the basics of financial measurement
Can read an income statement, balance sheet, and cash flow statement
Know difference between profit and cash
Understands why the balance sheet balances
The numebrs neither scare or mystify and prepared to question the numbers
Know where to identify the art
You can't trust the numbers: Remember Enron?
One time charge
: Allows a company to take bad news and cram it into one quarter of results
Can't know exactly how to allocate costs, uses limited data, its not reality but a reflection of a reality that reflects reasonable estimates, resulting in a bias in the numbers
Revenue Recognition
Whether a cost is
operating expense
or
capital expenditure
What were the assumptions?
Accruals and Allocations
Salary estimates, how much salary should be matched to product and development cost, and how to accrue one month versus the next
Depreciation
Spread cost over useful life rather thasn record all at once
Valuation or company worth
Market cap
PE Ratio
DCF Method
Asset Valkuation method
"The Language of Business"
4.
Benefits of financial intelligence
Increased ability to critically evaluiate a company
Do you know how profitable the prducts or services you're working on?
In terms of capital expenditures, is ROI analysis based on solid data?
Does employer have enough cash to make payroll?
Understanding the bias in the numbers
Plan the future off your department or company
Benefits companies, better decisions, greater alignment
Questions to Ask