Financial Intelligence Rivised Edition

PART ONE

THE ART OF FINANCE (AND WHY IT MATTERS)

1. You Can’t Always Trust the Numbers 3

2. Spotting Assumptions, Estimates, and Biases 10

3. Why Increase Your Financial Intelligence? 17

4. The Rules Accountants Follow—and

Why You Don’t Always Have To 26

Part One Toolbox: 36

Getting What You Want; The Players and What

They Do; Reporting Obligations of Public Companies

PART TWO

THE (MANY) PECULIARITIES OF THE INCOME STATEMENT

5. Profi t Is an Estimate 43

6. Cracking the Code of the Income Statement 48

7. Revenue: The Issue Is Recognition 56

8. Costs and Expenses: No Hard-and-Fast Rules 63

9. The Many Forms of Profi t 75

Part Two Toolbox: 83

Understanding Variance; Profi t at Nonprofi ts;

A Quick Review: “Percent of ” and “Percent Change”

PART THREE

THE BALANCE SHEET REVEALS THE MOST

10. Understanding Balance Sheet Basics 89

11. Assets: More Estimates and Assumptions (Except for Cash) 95

12. On the Other Side: Liabilities and Equity 106

13. Why the Balance Sheet Balances 111

14. The Income Statement Affects the Balance Sheet 114

Part Three Toolbox: 119

Expense? Or Capital Expenditure?;

The Impact of Mark-to-Market Accounting

PART FOUR

CASH IS KING

15. Cash Is a Reality Check 125

16. Profi t ≠ Cash (and You Need Both) 129

17. The Language of Cash Flow 135

18. How Cash Connects with Everything Else 139

19. Why Cash Matters 148

Part Four Toolbox: 152

PART FIVE

RATIOS: LEARNING WHAT THE NUMBERS ARE REALLY TELLING YOU

20. The Power of Ratios 157

21. Profi tability Ratios: The Higher the Better (Mostly) 164

22. Leverage Ratios: The Balancing Act 172

23. Liquidity Ratios: Can We Pay Our Bills? 176

24. Effi ciency Ratios: Making the Most of Your Assets 179

25. The Investor’s Perspective: The “Big Five” Numbers

and Shareholder Value 185

Part Five Toolbox: 191

Which Ratios Are Most Important to Your Business?;

The Power of Percent of Sales; Ratio Relationships;

Different Companies, Different Calculations

PART SIX

HOW TO CALCULATE (AND REALLY UNDERSTAND) RETURN ON INVESTMENT

26. The Building Blocks of ROI 197

27. Figuring ROI: The Nitty-Gritty 203

Part Six Toolbox: 216

A Step-by-Step Guide to Analyzing Capital Expenditures;

Calculating the Cost of Capital; Economic Value Added

and Economic Profi t—Putting It All Together

PART SEVEN

APPLIED FINANCIAL INTELLIGENCE: WORKING CAPITAL MANAGEMENT

28. The Magic of Managing the Balance Sheet 225

29. Your Balance Sheet Levers 229

30. Homing In on Cash Conversion 234

Part Seven Toolbox: 239

Accounts Receivable Aging

PART EIGHT

CREATING A FINANCIALLY INTELLIGENT COMPANY

31. Financial Literacy and Corporate Performance 243

32. Financial Literacy Strategies 249

33. Financial Transparency: Our Ultimate Goal 257

Part Eight Toolbox: 259

Understanding Sarbanes-Oxley