Book Review - Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers
Category Book Review Karen Berman Joe Knight John Case Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers
Like most IT professionals, I try not to get deeply involved in accounting stuff. While it's the scoreboard for how well the business is doing, all the terminology and techniques used to get the final score seem confusing and arcane. But with the book Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers by Karen Berman, Joe Knight, and John Case, it's now actually possible to me to understand much of what's going on in an annual report. If I had only had this when I was working at Enron...
Contents:
Part 1 - The Art of Finance (And Why It Matters To IT): You Can't Always Trust the Numbers; Spotting Assumptions, Estimates, and Biases; Why Increase Your Financial Intelligence?
Part 1 Toolbox: Getting what you want; The players and what they do
Part 2 - The (Many) Peculiarities of the Income Statement: Profit Is an Estimate; Cracking the Code of the Income Statement; Revenue - The Issue Is Recognition; Costs and Expenses - No Hard-and-Fast Rules; The Many Forms of Profit
Part 2 Toolbox: Variance; Percent calculations; Line of sight
Part 3 - The Balance Sheet Reveals The Most: Understanding Balance Sheet Basics; Assets - More Estimates and Assumptions (Except for Cash); On the Other Side - Liabilities and Equity; Why the Balance Sheet Matters; The Income Statement Affects the Balance Sheet
Part 3 Toolbox: Employees as assets; Expenses versus capital expenditures
Part 4 - Cash is King: Cash Is a Reality Check; Profit <> Cash (and You Need Both); The Language of Cash Flow; How Cash Connects with Everything; Why Cash Matters
Part 4 Toolbox - Free cash flow
Part 5 - Learning What The Numbers Are Really Telling You: The Power of Ratios; Profitability Ratios - The Higher the Better (Mostly); Leverage Ratios - The Balancing Act; Liquidity Ratios - Can We Pay Our Bills?; Efficiency Ratios - Making the Most of Your Assets
Part 5 Toolbox - Ratios for the business; Ratios for IT; Leading versus lagging indicators; Percent-of-sales analysis; Ratio relationships
Part 6 - How to Calculate (And Really Understand) Return On Investment: The Building Blocks of ROI; Figuring ROI - The Nitty-Gritty
Part 6 Toolbox: ROI of an IT Project
Part 7 - Applied Financial Intelligence - Working Capital Management: The Magic of Managing the Balance Sheet; Your Balance Sheet Levers; Homing In on Cash Conversion
Part 7 Toolbox: Understanding accounts-receiving aging
Part 8 - Creating a Financially Intelligent IT Department (and Organization): Financial Literacy, Transparency, and Corporate Performance; Financial Literacy Strategies
Part 8 Toolbox: Understanding Sarbanes-Oxley
Appendix A - Sample Financials; Appendix B - Exercises to Build Your Financial Intelligence - Income Statement, Balance Sheet, Cash Flow Statement, Ratios; Appendix C - Kimberly-Clark and FedEx Financial Statements; Notes; Acknowledgments; Index; About the Authors
I think what makes this book so successful is that it doesn't try to turn you (the IT person) into an accountant. The authors use down-to-earth language and explanations to allow you to get a handle on basic accounting concepts and how they play out on financial reports. For instance, it's a reasonable assumption to think that if you showed a million dollar profit, that you should be swimming in cash. Or at least that's how I used to think. But cash and profits are two entirely different things, and it's entirely possible to show a profit yet be financially strapped and unable to pay your employees. Also, accounting rules are not the cut-and-dried calculations you might think they are. I learned that simple decisions, like what to treat as a capital expenditure and how fast to depreciate something, have a fair amount of latitude built in. Depending on how the company chooses, a particular scenario could be seen as either a money-losing or profit-earning venture. All this proves that you really do need to know what's going on in order to get a true feeling for how the company's balance sheet is doing.
In many ways, this would be a great book regardless of what profession you happen to be in. The authors tie it back to IT in this particular case, so that you can figure out how certain numbers might affect your success or determine your direction. Knowing that cash flow is tight in the first quarter means that you might not want to pitch that particular system upgrade in January. If the numbers show that your receivables are running at 45 days, a smart IT manager might want to focus on system enhancements that would improve that number. Even being able to use the correct financial terms when you're meeting with the CFO will do wonders for getting your needs considered in a more realistic fashion.
I'd recommend this book for just about any person who wants to better understand how the company they work for is performing financially. And if you're an IT person who has some budget responsibility, this should move into the "must read" category.
Like most IT professionals, I try not to get deeply involved in accounting stuff. While it's the scoreboard for how well the business is doing, all the terminology and techniques used to get the final score seem confusing and arcane. But with the book Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers by Karen Berman, Joe Knight, and John Case, it's now actually possible to me to understand much of what's going on in an annual report. If I had only had this when I was working at Enron...
Contents:
Part 1 - The Art of Finance (And Why It Matters To IT): You Can't Always Trust the Numbers; Spotting Assumptions, Estimates, and Biases; Why Increase Your Financial Intelligence?
Part 1 Toolbox: Getting what you want; The players and what they do
Part 2 - The (Many) Peculiarities of the Income Statement: Profit Is an Estimate; Cracking the Code of the Income Statement; Revenue - The Issue Is Recognition; Costs and Expenses - No Hard-and-Fast Rules; The Many Forms of Profit
Part 2 Toolbox: Variance; Percent calculations; Line of sight
Part 3 - The Balance Sheet Reveals The Most: Understanding Balance Sheet Basics; Assets - More Estimates and Assumptions (Except for Cash); On the Other Side - Liabilities and Equity; Why the Balance Sheet Matters; The Income Statement Affects the Balance Sheet
Part 3 Toolbox: Employees as assets; Expenses versus capital expenditures
Part 4 - Cash is King: Cash Is a Reality Check; Profit <> Cash (and You Need Both); The Language of Cash Flow; How Cash Connects with Everything; Why Cash Matters
Part 4 Toolbox - Free cash flow
Part 5 - Learning What The Numbers Are Really Telling You: The Power of Ratios; Profitability Ratios - The Higher the Better (Mostly); Leverage Ratios - The Balancing Act; Liquidity Ratios - Can We Pay Our Bills?; Efficiency Ratios - Making the Most of Your Assets
Part 5 Toolbox - Ratios for the business; Ratios for IT; Leading versus lagging indicators; Percent-of-sales analysis; Ratio relationships
Part 6 - How to Calculate (And Really Understand) Return On Investment: The Building Blocks of ROI; Figuring ROI - The Nitty-Gritty
Part 6 Toolbox: ROI of an IT Project
Part 7 - Applied Financial Intelligence - Working Capital Management: The Magic of Managing the Balance Sheet; Your Balance Sheet Levers; Homing In on Cash Conversion
Part 7 Toolbox: Understanding accounts-receiving aging
Part 8 - Creating a Financially Intelligent IT Department (and Organization): Financial Literacy, Transparency, and Corporate Performance; Financial Literacy Strategies
Part 8 Toolbox: Understanding Sarbanes-Oxley
Appendix A - Sample Financials; Appendix B - Exercises to Build Your Financial Intelligence - Income Statement, Balance Sheet, Cash Flow Statement, Ratios; Appendix C - Kimberly-Clark and FedEx Financial Statements; Notes; Acknowledgments; Index; About the Authors
I think what makes this book so successful is that it doesn't try to turn you (the IT person) into an accountant. The authors use down-to-earth language and explanations to allow you to get a handle on basic accounting concepts and how they play out on financial reports. For instance, it's a reasonable assumption to think that if you showed a million dollar profit, that you should be swimming in cash. Or at least that's how I used to think. But cash and profits are two entirely different things, and it's entirely possible to show a profit yet be financially strapped and unable to pay your employees. Also, accounting rules are not the cut-and-dried calculations you might think they are. I learned that simple decisions, like what to treat as a capital expenditure and how fast to depreciate something, have a fair amount of latitude built in. Depending on how the company chooses, a particular scenario could be seen as either a money-losing or profit-earning venture. All this proves that you really do need to know what's going on in order to get a true feeling for how the company's balance sheet is doing.
In many ways, this would be a great book regardless of what profession you happen to be in. The authors tie it back to IT in this particular case, so that you can figure out how certain numbers might affect your success or determine your direction. Knowing that cash flow is tight in the first quarter means that you might not want to pitch that particular system upgrade in January. If the numbers show that your receivables are running at 45 days, a smart IT manager might want to focus on system enhancements that would improve that number. Even being able to use the correct financial terms when you're meeting with the CFO will do wonders for getting your needs considered in a more realistic fashion.
I'd recommend this book for just about any person who wants to better understand how the company they work for is performing financially. And if you're an IT person who has some budget responsibility, this should move into the "must read" category.
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