Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers

Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers

by Karen Berman, Joe Knight, John Case
Released May 2008
Publisher(s): Harvard Business Review Press
ISBN: 9781422119143

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Book description

As an IT manager, you're expected to make key decisions and recommend major investments. And that means understanding your decisions' financial impact on your company. But if you're like many information technology practitioners, you may feel uncomfortable incorporating the financials into your day-to-day work.

Using the groundbreaking formula they introduced in their book Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean, Karen Berman and Joe Knight present the essentials of finance specifically for IT experts.

Drawing on their work training tens of thousands of managers and employees at leading organizations worldwide, the authors illuminate the basics of financial management and measurement and provide hands-on activities for practicing what you are reading. You'll discover:

· Why the assumptions behind financial data matter
· What your company's income statement, balance sheet, and cash flow statement reveal
· How to use ratios to assess your company's financial health
· How to calculate return on IT investments
· Ways to use financial information to support your company's business units and do your own job better
· How to instill financial intelligence throughout your team

Authoritative and accessible, Financial Intelligence for IT Professionals empowers you to "talk numbers" confidently with your boss, colleagues, and direct reports -- and understand how the financials affect your part of the business.

Table of contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Table of Contents
  5. PREFACE
  6. Part One - The Art of Finance (and Why It Matters to IT)
    1. 1 - You Can’t Always Trust the Numbers
      1. THE ART OF FINANCE
      2. JUDGMENT CALLS
    2. 2 - Spotting Assumptions, Estimates, and Biases
      1. ACCRUALS AND ALLOCATIONS: LOTS OF ASSUMPTIONS AND ESTIMATES
      2. DISCRETION ABOUT DEPRECIATION
      3. THE MANY METHODS OF VALUATION
    3. 3 - Why Increase Your Financial Intelligence?
      1. THE BENEFITS OF FINANCIAL LITERACY
      2. HOW IT BENEFITS A COMPANY
      3. ROADBLOCKS TO FINANCIAL SAVVY
    4. Part One - TOOLBOX
      1. GETTING WHAT YOU WANT
      2. THE PLAYERS AND WHAT THEY DO
  7. Part Two - The (Many) Peculiarities of the Income Statement
    1. 4 - Profit Is an Estimate
      1. A (VERY) LITTLE ACCOUNTING
      2. THE PURPOSE OF THE INCOME STATEMENT
    2. 5 - Cracking the Code of the Income Statement
      1. READING AN INCOME STATEMENT
      2. ONE BIG RULE
    3. 6 - Revenue The Issue Is Recognition
      1. MURKY GUIDELINES
      2. POSSIBILITIES FOR MANIPULATION
    4. 7 - Costs and Expenses No Hard-and-Fast Rules
      1. COST OF GOODS SOLD OR COST OF SERVICES
      2. OPERATING EXPENSES: WHAT’S NECESSARY?
      3. THE POWER OF DEPRECIATION AND AMORTIZATION
      4. ONE-TIME CHARGES: A YELLOW FLAG
      5. IT COSTS IN THE SCHEME OF THINGS
    5. 8 - The Many Forms of Profit
      1. GROSS PROFIT: HOW MUCH IS ENOUGH?
      2. OPERATING PROFIT: A KEY TO HEALTH
      3. NET PROFIT AND HOW TO FIX IT
      4. BUDGET RESULTS MEETINGS
    6. Part Two - TOOLBOX
      1. UNDERSTANDING VARIANCE
      2. CALCULATING PERCENT OF AND PERCENT CHANGE
      3. LINE OF SIGHT
  8. Part Three - The Balance Sheet Reveals the Most
    1. 9 - Understanding Balance Sheet Basics
      1. SHOWING WHERE THINGS STAND RIGHT NOW
      2. INDIVIDUALS AND BUSINESSES
      3. READING A BALANCE SHEET
    2. 10 - Assets More Estimates and Assumptions (Except for Cash)
      1. TYPES OF ASSETS
    3. 11 - On the Other Side Liabilities and Equity
      1. TYPES OF LIABILITIES
      2. OWNERS’ EQUITY
    4. 12 - Why the Balance Sheet Balances
      1. REASONS FOR BALANCE
    5. 13 - The Income Statement Affects the Balance Sheet
      1. THE EFFECT OF PROFIT ON EQUITY
      2. AND MANY OTHER EFFECTS
      3. ASSESSING A COMPANY’S HEALTH
    6. Part Three - TOOLBOX
      1. “EMPLOYEES ARE OUR MOST VALUABLE ASSET” (OR ARE THEY?)
      2. EXPENSE? OR CAPITAL EXPENDITURE?
  9. Part Four - Cash Is King
    1. 14 - Cash Is a Reality Check
      1. WHY CASH IS KING
    2. 15 - Profit ≠ Cash (and You Need Both)
      1. PROFIT WITHOUT CASH
      2. CASH WITHOUT PROFIT
    3. 16 - The Language of Cash Flow
      1. TYPES OF CASH FLOW
    4. 17 - How Cash Connects with Everything Else
      1. RECONCILING PROFIT AND CASH
      2. A START-UP COMPANY
      3. A REALISTIC COMPANY
    5. 18 - Why Cash Matters
      1. THE POWER OF UNDERSTANDING CASH FLOW
    6. Part Four - TOOLBOX
      1. FREE CASH FLOW
  10. Part Five - Ratios: Learning What the Numbers Are Really Telling You
    1. 19 - The Power of Ratios
      1. ACCOUNTING TRICKS
      2. ANALYZING RATIOS
    2. 20 - Profitability Ratios The Higher the Better (Mostly)
      1. GROSS PROFIT MARGIN PERCENTAGE
      2. OPERATING PROFIT MARGIN PERCENTAGE
      3. NET PROFIT MARGIN PERCENTAGE
      4. RETURN ON ASSETS
      5. RETURN ON EQUITY
    3. 21 - Leverage Ratios The Balancing Act
      1. DEBT-TO-EQUITY
      2. INTEREST COVERAGE
    4. 22 - Liquidity Ratios Can We Pay Our Bills?
      1. CURRENT RATIO
      2. QUICK RATIO
    5. 23 - Efficiency Ratios Making the Most of Your Assets
      1. INVENTORY DAYS AND INVENTORY TURNOVER
      2. DAYS SALES OUTSTANDING
      3. DAYS PAYABLE OUTSTANDING
      4. PROPERTY, PLANT, AND EQUIPMENT TURNOVER
      5. TOTAL ASSET TURNOVER
    6. Part Five - TOOLBOX
      1. WHICH RATIOS ARE MOST IMPORTANT TO YOUR BUSINESS?
      2. WHICH RATIOS ARE MOST IMPORTANT TO INFORMATION TECHNOLOGY?
      3. LEADING OR LAGGING INDICATORS?
      4. THE POWER OF PERCENT OF SALES
      5. RATIO RELATIONSHIPS
  11. Part Six - How to Calculate (and Really Understand) Return on Investment
    1. 24 - The Building Blocks of ROI
      1. TIME VALUE OF MONEY
      2. FUTURE VALUE AND PRESENT VALUE
    2. 25 - Figuring ROI The Nitty-Gritty
      1. ANALYZING CAPITAL EXPENDITURES
      2. LEARNING THE THREE METHODS
      3. COMPARING THE THREE METHODS
      4. ROI IN IT
    3. Part Six - TOOLBOX
      1. ROI OF AN IT PROJECT
  12. Part Seven - Applied Financial Intelligence: Working Capital Management
    1. 26 - The Magic of Managing the Balance Sheet
      1. THE ELEMENTS OF WORKING CAPITAL
    2. 27 - Your Balance Sheet Levers
      1. MANAGING DSO
      2. MANAGING INVENTORY
    3. 28 - Homing In on Cash Conversion
      1. THE CASH CONVERSION CYCLE
    4. Part Seven - TOOLBOX
      1. ACCOUNTS-RECEIVABLE AGING
  13. Part Eight - Creating a Financially Intelligent IT Department (and Organization)
    1. 29 - Financial Literacy, Transparency, and Corporate Performance
      1. BETTER COMPANIES
      2. TAKING IT TO THE TROOPS
    2. 30 - Financial Literacy Strategies
      1. A FINANCIALLY LITERATE IT DEPARTMENT
      2. AN ORGANIZATION-WIDE INITIATIVE
    3. Part Eight - TOOLBOX
      1. UNDERSTANDING SARBANES-OXLEY
  14. APPENDIX A - Sample Financials
  15. APPENDIX B - Exercises to Build Your Financial Intelligence Income Statement Exercise
  16. APPENDIX C - Kimberly-Clark and FedEx Financial Statements
  17. NOTES
  18. ACKNOWLEDGMENTS
  19. INDEX
  20. ABOUT THE AUTHORS

Product information

  • Title: Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers
  • Author(s): Karen Berman, Joe Knight, John Case
  • Release date: May 2008
  • Publisher(s): Harvard Business Review Press
  • ISBN: 9781422119143