How to Use Financial Statements: A Guide to Understanding the Numbers Book

This volume offers a new edition of a book first published (entitled Financial Intelligence) in 2006. Although the focus in this second edition is on entrepreneurs, the material provided will help all managers to develop the entrepreneurial mindset to which Welch refers, and, to acquire a highly-developed financial intelligence quotient (FIQ). Moreover, they can then do everything they possibly can to develop a high-level of FIQ among others at all levels and in all areas of their organization. In the Preface, Berman and Knight explain what their reader will learn:

1. How to read the three major financial statements (i.e. income, balance sheet, and cash flow) and how to interpret what they contain

2. How to calculate critical ratios and to understand what they reveal

3. Why net cash in a given time period is not the same as profit and why a company needs both profit and cash

4. How to use various return on investment (ROI) tools to analyze big purchases in order to make certain the investments add sufficient value to the business

5. How to manage working capital that helps to improve a company's cash flow and profitability even when there is no change in sales or expenses

6. How to use the three main methods for establishing the value of a business (i.e. the price-to-earnings ratio method, the discounted cash flow method, and the asset valuation method) "and many other tricks of the financial trade"

"Along the way, we'll let you in on the finance profession's little secret, which is that finance is as much art as it is science." Berman and Knight explain why understanding this "little secret" is so important to acquiring a high-level of financial intelligence.

They carefully organize their material within 30 chapters that are divided among eight sequential Parts: The Art of Finance (and Why It Matters), The (Many) Peculiarities of the Income Statement, The Balance Sheet Reveals the Most, Cash Is King, Ratios: Learning What the Numbers Are Really Telling You, How to Calculate and (Really) Understand Return on Investment, Applied Financial Intelligence: Working Capital Management, and Creating a Financially Intelli9gent Company. They also provide three appendices: Sample Financials, Exercises to Build Your Financial Intelligence - Income Statement; Balance Sheet; Cash Flow Statement; Ratios, and Under Armour and eBay Financial Statements. At the conclusion of each Part, there are contributions to the filling of the reader's "Toolbox."