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[Finance Basics (HBR 20-Minute Manager Series)] [By: Review, Harvard Business] [March, 2014]
Intimidated by corporate finance? The numbers (and the jargon) can feel overwhelming--but you have to understand them to manage effectively. Finance Basics explains the fundamentals simply and quickly, introducing you to key terms and concepts such to navigate financial statementsHow to weigh costs and benefitsWhat's involved in budgeting and forecastingHow to gauge a company's financial healthDon't have much time? Get up to speed fast on the most essential business skills with HBR's 20-Minute Manager series. Whether you need a crash course or a brief refresher, each book in the series is a concise, practical primer that will help you brush up on a key management topic. Advice you can quickly read and apply, for ambitious professionals and aspiring executives--from the most trusted source in business. Also available as an ebook.
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First published January 1, 2014
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Displaying 1 - 30 of 33 reviews
December 18, 2016
"Finance Basics" is a part of the "20 Minute Manager" series by HBR (Harvard Business Review). The book, on its coverpage, claims to :- 1) Decode the jargon 2) Navigate key statements and 3) Gauge Performance
As expected, the book starts with the three major financial statements and the author further digs into each term, explaining it with profound examples. The next chapter is on defining & explaining all the financial jargons. While the author has explained some terms such as Break Even Analysis and Return on Investment very nicely, I felt that many other terms need more detailed explanation. The book continues with a chapter on "Preparing the budget". In this chapter, the author hasn't only explained how a budget of a company is formulated but has also discussed various considerations that need to be take care of before & after the budget is declared. There are short chapters on calculating ROI & Tracking performance, that I found hugely inadequate. The book ends with a "Test Yourself" questionnaire with only 10 questions and their detailed explanations and a glossary of all the financial terms used in the book.
The book is of small size with only 100-something pages and you can guess that it is not at all suitable to even teach the 'basic' of finance. A major disappointment from the renowned HBR!
As expected, the book starts with the three major financial statements and the author further digs into each term, explaining it with profound examples. The next chapter is on defining & explaining all the financial jargons. While the author has explained some terms such as Break Even Analysis and Return on Investment very nicely, I felt that many other terms need more detailed explanation. The book continues with a chapter on "Preparing the budget". In this chapter, the author hasn't only explained how a budget of a company is formulated but has also discussed various considerations that need to be take care of before & after the budget is declared. There are short chapters on calculating ROI & Tracking performance, that I found hugely inadequate. The book ends with a "Test Yourself" questionnaire with only 10 questions and their detailed explanations and a glossary of all the financial terms used in the book.
The book is of small size with only 100-something pages and you can guess that it is not at all suitable to even teach the 'basic' of finance. A major disappointment from the renowned HBR!
February 10, 2016
Really good for what it is: a very brief look at the basics of finance. The brevity is great as it gets right to the point. The downside is due to the brevity, it's a little difficult to really feel the terminology has sunk in.
August 24, 2019
Very handy for someone has limited or zero knowledge on corporate finance. A quick and easy to follow read.
January 31, 2024
This book as titled "Finance Basics" is tackling the basic finance conceps, indicators and tools. It is reeased in 2014 as part of the 20 Minute Manager (series) sponsored and published by Harvard Business Review Press.
I did find this book very useful as an introduction to understand the finance jargon and using the financial tools, techniques and statements to leverage the decision making process.
It is short book (or booklet) as the "20 minute manager" name implies, but don't let that discourage you from reading this book, the two short chapters about "Using the Statments to measure Financial health" and "calculating return on investment" are worth reading.
This book is recommended and start point reading in Finance for non finance professionals.
Quotes:
"The best managers don't just watch the budget - they look for the right combination of controlling costs, improving sales, and utilizing assets more effectively." Page 10
"managers rely primarily on three documents: the income statement, the balance sheet, and the cash flow statement.These are called financialstatements. " Page 10
"The statements are usually similar enough that you can easily compare performance. The reason for the similarity is that accountants all follow the same set of rules. In the United States, those rules are called generally accepted accounting principles, or GAAP (pronounced "gap")." Page 11
"The key to this -accrual accounting- method is what accountants call the matching principle: Match every cost to the revenue that is associated with it." Page 12
"Why use the accrual method? Because it gives you a more accurate picture of profit." Page 13
"The income statement tells you whether the company is making a profit-that is, whether it has positive net income-according to the rules of accrual accounting." Page 13
"Gross profit, which shows how much the company made before paying its overhead, taxes, and so on." Page 14
"A balance sheet is a snapshot: It summarizes a company's financial position at a given point in time, usually the last day of a year or a quarter. It shows what the company owns (its assets), what it owes (its liabilities), and the difference between them, called owners' equity or shareholders' equity." Page 17
"A balance sheet is called that because it always bal- ances. That is, all the assets must equal all the liabilities plus owners' equity. This is sometimes known as the fundamental accounting equation, and it looks like this:
Assets = liabilities + owners' equity" page 17
"Short-term debt must be paid in a year or less. It includes accounts payable, short-term notes, salaries, and income taxes." Page 21
"Subtracting current liabilities from current assets gives you what's known as working capital, which indicates how much money the company has tied up in operating activities." Page 21-22
"Owners' equity, as we have seen, is the total of what shareholders have invested in the company over time (contributed capital) and what it has earned and retained in past years (retained earnings)." Page 22
"A cash flow statement gives you a peek into a com- pany's checking account. Like a bank statement, it tells how much cash was on hand at the beginning of a period and how much at the end. It also shows where the cash came from and how the company spent it." Page 22
"The cash flow statement shows how well your company is turning profits into cash, and that ability is ultimately what keeps a business solvent." Page 23
"A company's operating cash flow is a very good indicator of its financial health. If it's negative, the company may be in serious trouble." Page 25-26
"This figure corresponds to the increase or decrease in cash and marketable securities that appears at the top of a two-year balance sheet comparison." Pade 27 *Increase (or Decrease) in cash during the year figure - Cash flow statement.
"Valuation usually refers to the process for determining the total value of a company. The book value is simply the owners' equity figure on the balance sheet. But the market value of the business-what an acquirer would pay for it may be quite different." Page 40
"A budget is a financial blueprint for achieving business goals." Page 47
"STEPS FOR CREATING A BUDGET
1. Analyze your company's overall strategy.
2. If your company does top-down budgeting. start with the targets given to you by senior management. If it does bottom-up budgeting, create targets yourself.
3. Articulate your assumptions.
4. Quantify your assumptions.
5. Review: Do the numbers add up? Is your budget defensible in light of the company's strategic goals?" Page 54
"BUDGETING BEST PRACTICES:
- Focus on the main goal.
- Be realistic.
- Get help.
- Talk to your staff." Page 60
"ROI calculations always involve the following steps:
1. Identify all the costs of the new purchase or business opportunity.
2. Estimate the savings to be realized.
3. Estimate how much cash the proposed invest- ment will generate.
4. Map out a time line for expected costs, savings, and cash flows, and use sensitivity analysis to challenge your assumptions.
5. Evaluate the unquantifiable costs and benefits." Page 66-67
"But payback analysis does not tell you the rate of return on the investment. It also doesn't take into account the time value of money, because it compares outlays today with cash coming in down the road." Page 69
"A method for expressing future dollars in terms of current dollars.That's what NPV and IRR calculations allow you to do." Page 71
"IRR is based on the same formula as NPV, with one difference: When calculating NPV, you know the desired rate of return-that's the discount rate-and you use it to determine how much money your future cash flows are worth today. With IRR, you essentially set the net present value at zero and solve the equation for the actual rate of return." Page 74
I did find this book very useful as an introduction to understand the finance jargon and using the financial tools, techniques and statements to leverage the decision making process.
It is short book (or booklet) as the "20 minute manager" name implies, but don't let that discourage you from reading this book, the two short chapters about "Using the Statments to measure Financial health" and "calculating return on investment" are worth reading.
This book is recommended and start point reading in Finance for non finance professionals.
Quotes:
"The best managers don't just watch the budget - they look for the right combination of controlling costs, improving sales, and utilizing assets more effectively." Page 10
"managers rely primarily on three documents: the income statement, the balance sheet, and the cash flow statement.These are called financialstatements. " Page 10
"The statements are usually similar enough that you can easily compare performance. The reason for the similarity is that accountants all follow the same set of rules. In the United States, those rules are called generally accepted accounting principles, or GAAP (pronounced "gap")." Page 11
"The key to this -accrual accounting- method is what accountants call the matching principle: Match every cost to the revenue that is associated with it." Page 12
"Why use the accrual method? Because it gives you a more accurate picture of profit." Page 13
"The income statement tells you whether the company is making a profit-that is, whether it has positive net income-according to the rules of accrual accounting." Page 13
"Gross profit, which shows how much the company made before paying its overhead, taxes, and so on." Page 14
"A balance sheet is a snapshot: It summarizes a company's financial position at a given point in time, usually the last day of a year or a quarter. It shows what the company owns (its assets), what it owes (its liabilities), and the difference between them, called owners' equity or shareholders' equity." Page 17
"A balance sheet is called that because it always bal- ances. That is, all the assets must equal all the liabilities plus owners' equity. This is sometimes known as the fundamental accounting equation, and it looks like this:
Assets = liabilities + owners' equity" page 17
"Short-term debt must be paid in a year or less. It includes accounts payable, short-term notes, salaries, and income taxes." Page 21
"Subtracting current liabilities from current assets gives you what's known as working capital, which indicates how much money the company has tied up in operating activities." Page 21-22
"Owners' equity, as we have seen, is the total of what shareholders have invested in the company over time (contributed capital) and what it has earned and retained in past years (retained earnings)." Page 22
"A cash flow statement gives you a peek into a com- pany's checking account. Like a bank statement, it tells how much cash was on hand at the beginning of a period and how much at the end. It also shows where the cash came from and how the company spent it." Page 22
"The cash flow statement shows how well your company is turning profits into cash, and that ability is ultimately what keeps a business solvent." Page 23
"A company's operating cash flow is a very good indicator of its financial health. If it's negative, the company may be in serious trouble." Page 25-26
"This figure corresponds to the increase or decrease in cash and marketable securities that appears at the top of a two-year balance sheet comparison." Pade 27 *Increase (or Decrease) in cash during the year figure - Cash flow statement.
"Valuation usually refers to the process for determining the total value of a company. The book value is simply the owners' equity figure on the balance sheet. But the market value of the business-what an acquirer would pay for it may be quite different." Page 40
"A budget is a financial blueprint for achieving business goals." Page 47
"STEPS FOR CREATING A BUDGET
1. Analyze your company's overall strategy.
2. If your company does top-down budgeting. start with the targets given to you by senior management. If it does bottom-up budgeting, create targets yourself.
3. Articulate your assumptions.
4. Quantify your assumptions.
5. Review: Do the numbers add up? Is your budget defensible in light of the company's strategic goals?" Page 54
"BUDGETING BEST PRACTICES:
- Focus on the main goal.
- Be realistic.
- Get help.
- Talk to your staff." Page 60
"ROI calculations always involve the following steps:
1. Identify all the costs of the new purchase or business opportunity.
2. Estimate the savings to be realized.
3. Estimate how much cash the proposed invest- ment will generate.
4. Map out a time line for expected costs, savings, and cash flows, and use sensitivity analysis to challenge your assumptions.
5. Evaluate the unquantifiable costs and benefits." Page 66-67
"But payback analysis does not tell you the rate of return on the investment. It also doesn't take into account the time value of money, because it compares outlays today with cash coming in down the road." Page 69
"A method for expressing future dollars in terms of current dollars.That's what NPV and IRR calculations allow you to do." Page 71
"IRR is based on the same formula as NPV, with one difference: When calculating NPV, you know the desired rate of return-that's the discount rate-and you use it to determine how much money your future cash flows are worth today. With IRR, you essentially set the net present value at zero and solve the equation for the actual rate of return." Page 74
August 23, 2020
An over-simplistic version of the key metrics used by finance professionals. This book is not worth your time. Instead, one should consider reading the following books:
Key points:
• The best managers don’t just watch the budget—they
look for the right combination of controlling costs,
improving sales, and utilizing assets more effectively.
They understand where revenue comes from, how the
money is spent, and how much profi t the company is
making. They know how good a job the company is
doing at turning profi t into cash.
• The income statement shows the bottom line.
Using the rules of accounting, it indicates how
much profi t or loss a company generated over a
period of time—a month, a quarter, or a year.
• The balance sheet shows whether a company is
solvent. It provides a snapshot of the company’s
assets, liabilities, and equity on a given day.
• The cash flow statement shows how much cash
a company is generating. It also tracks, in broad
terms, where that cash came from and what it
is being used for.
Ratios are the tools used to perform analysis of the financial statements:
• Profitability ratios
o Return on sales = PAT/ Sales
o Return on assets = PAT/ Total assets
o Return on equity = PAT/ total equity
o Gross Profit margin = GP/ Sales
o EBIT Margin = EBIT/ Revenue
• Efficiency ratios
o Asset turnover
o DSO
o DPO
o DIO
• Liquidity ratios
o Current ratio
o Quick ratio
• Leverage ratios
o Interest coverage
o Debt to equity
• Tools other than ratios used to monitor the financial performance is Economic Value Added (EVA) (Trademark of Consulting firm Stern, Stewart)
o EPS
o P/E Ratio
o Growth indicators – increase in earnings, revenue
o EVA
o Productivity measure (sales per employee, net income per employee)
• Budgeting – top-down v/s bottom up
o In top-down budgeting, senior management sets specifi c goals for such items as net income, profi t margins, and expenses. Each department may be told, for example, to limit expense increases to 6% above the previous year’s levels. As you prepare your budget, observe such parameters and look at the company’s overall plans for sales and marketing and for costs and expenses. Those objectives provide the framework within which you must operate. For instance, many companies strive to improve profi tability every year by reducing expenses as a percentage of revenue.
o In bottom-up budgeting, managers aren’t given specifi c targets. Instead, they put together budgets that they feel will meet the strategic needs and goals of their respective departments. These budgets are “rolled up” into an overall company budget. The company budget is then adjusted, with requests for changes sent back down to individual departments.
Key points:
• The best managers don’t just watch the budget—they
look for the right combination of controlling costs,
improving sales, and utilizing assets more effectively.
They understand where revenue comes from, how the
money is spent, and how much profi t the company is
making. They know how good a job the company is
doing at turning profi t into cash.
• The income statement shows the bottom line.
Using the rules of accounting, it indicates how
much profi t or loss a company generated over a
period of time—a month, a quarter, or a year.
• The balance sheet shows whether a company is
solvent. It provides a snapshot of the company’s
assets, liabilities, and equity on a given day.
• The cash flow statement shows how much cash
a company is generating. It also tracks, in broad
terms, where that cash came from and what it
is being used for.
Ratios are the tools used to perform analysis of the financial statements:
• Profitability ratios
o Return on sales = PAT/ Sales
o Return on assets = PAT/ Total assets
o Return on equity = PAT/ total equity
o Gross Profit margin = GP/ Sales
o EBIT Margin = EBIT/ Revenue
• Efficiency ratios
o Asset turnover
o DSO
o DPO
o DIO
• Liquidity ratios
o Current ratio
o Quick ratio
• Leverage ratios
o Interest coverage
o Debt to equity
• Tools other than ratios used to monitor the financial performance is Economic Value Added (EVA) (Trademark of Consulting firm Stern, Stewart)
o EPS
o P/E Ratio
o Growth indicators – increase in earnings, revenue
o EVA
o Productivity measure (sales per employee, net income per employee)
• Budgeting – top-down v/s bottom up
o In top-down budgeting, senior management sets specifi c goals for such items as net income, profi t margins, and expenses. Each department may be told, for example, to limit expense increases to 6% above the previous year’s levels. As you prepare your budget, observe such parameters and look at the company’s overall plans for sales and marketing and for costs and expenses. Those objectives provide the framework within which you must operate. For instance, many companies strive to improve profi tability every year by reducing expenses as a percentage of revenue.
o In bottom-up budgeting, managers aren’t given specifi c targets. Instead, they put together budgets that they feel will meet the strategic needs and goals of their respective departments. These budgets are “rolled up” into an overall company budget. The company budget is then adjusted, with requests for changes sent back down to individual departments.
February 12, 2021
Basic concepts with definition and explanation is given in the book.By reading this book you will get knowledge about basic financial terms and will able to understand them. Which are very essential to run and budgeting a company's resources.
February 17, 2023
As the title suggests, it covers the basics. It highlights some key concept but stays quite high level. Nevertheless, this book can be used as an introduction after which you can read other books for more detailed information.
June 22, 2024
Basic, quick, and interesting read for non-finance people. I learned the most with the financial statements explanation. With it I could better understand the performance of the company I worm for and compare it against its competitors.
July 9, 2017
Good Book to understand fundamentals simply and quickly.
August 12, 2019
Good introductory material making Finance jargon palatable for beginners and providing a basic landscape of the challenges.
November 24, 2019
Good book to understand the fundamentals of finance and the current lexicon used by finance experts.
February 20, 2020
A concise and helpful reading.
March 31, 2020
A good short read.
June 14, 2020
Short and basic
June 23, 2020
3.5, good quick guide
October 23, 2020
Audible Book - see notes
This entire review has been hidden because of spoilers.
September 11, 2021
It's a short and precise books on the very basics of finance. It doesn't lead to any deep or insightful understanding of the topic.
January 21, 2022
Short and sweet.
February 3, 2022
Solid intro to finance basics and how they apply to the modern organization
May 2, 2022
A short but powerful audiobook on basics of finance.
July 10, 2022
#88 of 100 self help books
Very short and informative
Very short and informative
August 3, 2022
A quick book with quick insights into terms and evaluation practices for financial domain.
January 14, 2024
superbasic, could be useful for refreshing some terms
June 26, 2025
clearly presented and it is basic as advertised.
March 4, 2024
An efficient read to gain quick confidence on finance & recollect missed concepts one couldn’t comprehend early on.
I appreciate the authors’ efforts into creating this book as the recaps were really helpful!
I appreciate the authors’ efforts into creating this book as the recaps were really helpful!
April 29, 2024
It is a short and precise book but it does not touch on topics in depth, something like if I gave you a smear of jam on your bread, I recommend it if you want to familiarize yourself with concepts and financial statements. I hope this brief recommendation will help you decide whether to read it or not. Finally, I can tell you that you can read the book in one day if you give it your time.
November 30, 2016
A brief overview about finance basics. The book gives you helpful informations to acquaint yourself with finance. But, if you have already had a well understanding about finance, this is not a good option for you.
January 10, 2021
A great introduction to financial terminology. It gives not only an understanding of the standard reports but also important ratios to check and assess. The evaluation of the ROI chapter was very helpful for me.
March 24, 2024
Esta basico lo terminas en 2 o 3hrs, bueno para empezar a entender sobre finanzas y como empezar a aplicarlo en tu trabajo tanto si eres empleado como jefe/dueño, tmb da recomendaciones de libros para seguir aprendiendo
January 3, 2016
I'm not sure if a 20 minute read is enough for such a wide topic coverage. Good summary tough.
Displaying 1 - 30 of 33 reviews