Financial Intelligence for Entrepreneurs: What you really need to know about the numbers

To manage successfully a portfolio, an investor should think like an entrepreneur. This book details the fundamentals of finance in a simple, yet comprehensive overview and cites current examples to elucidate principles. Because understanding finance entails a basic knowledge of accounting and typical accounting statements, the book covers the income, balance sheet, and cash flow statements. The balance sheet discloses fundamental questions about a company--its solvancy, the degree of liquidity, and the annual growth or decline of equity.

For a deeper interpretation of the numbers, the authors present the formulas for profitability, leverage, liquidity, and efficiency. A discussion of finance would not be complete without explaining return on investment (ROI). The authors weigh the strengths and weaknesses of the three methods for calculating ROI, the payback method, the present value method (NPV), and the internal rate of return method. They demonstrate the value of engaging in all three calculations in financial analysis, but view NPV as the most accurate measure of ROI. The authors argue the importance of managing balance sheet levers--days sales outstanding (DSO) and inventory. Finally, the authors address cash conversion, the speed with which a company collects its cash.

The authors end the book by stressing the importance of having a financially literate company, educated workers who understand how their work habits and actions impact the company's bottom line, a message equally applicable to a family and its members.

Berman, K. & Knight, J. (2008). Financial Intelligence for Entrepreneurs: What you really need to know about the numbers. Boston, MA: Harvard Business Press.
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