Financially intelligent managers understand the four distinct skill sets:

1. The Foundation. They can read an income statement, a balance sheet and a cash flow statement. Can differentiate between profit and cash.
2. The art of finance. They can iden...

The art of accounting is taking a limited set of data to get an accurate description of how well a company is doing.

Definitions to understand.

• Revenue is when a service/product is delivered.
• The income statement shows sa...

Accountants use accruals and allocations to attempt an accurate picture of the business for a month.

• Accruals: An accrual is the part of a revenue or expense item that is recorded for a specific period, e.g., product development costs. The purpose is to match costs to ...

Understanding how the numbers are used and what are assumptions puts you in control of the decisions.

• Goodwill: The difference between the net assets acquired and the amount of money the acquiring company pays form them.
• Balance sheet: The bala...

It consists of three main categories:

• Sales or revenue during a given time period. It includes sales (revenue) and Earnings-per-share (EPS)
• Costs and expenses: “Above the line” are the cost of goods sold (COGS), cost of services (COS). “Below t...

A balance sheet shows what a business owns at a particular time. A balance sheet always balances. Assets = liabilities + owners’ equity.

• Assets: What the company owns. It is more estimates and assumptions. Assets include cash; accounts receivable; inventory; property, ...

A good manager is aware of how both cash and profits affect a balance sheet. A balance sheet shows if a company is financially healthy.

The balance sheet answers the following questions:

• Do the assets outweigh the liabilities?
• Can the company pay its...

Profit is not cash. A healthy business needs both profit and cash.

Inflows: Cash moving into a business

Outflows: Cash moving out of a business

Types of cash flow:

• Cash from operating activities
• Cash from investing activities