PROJECT MANAGEMENT RESEATITUTE – ATHABASCA UNIVERSITY
Book Review - not more than 5 pages.
Referencing Details
TIITLE - AUTHOR(S) – KEYWORDS - FULL CITATION
Title: HBR guide to finance basics for managers
Author(s): David Stauffer, Jamie Bonomo & Andy Pasternak, Miles cook et all, Karen Berman
& Joe Night, John Mullins & Randy Komisars, John O’Leary and Andrew Likearman,
Keywords: Financial statements, Balance sheet, Income statement, Statement of cash flow,
Working capital model, Return on investment (ROI)
Full citation: Stauffer, D. et all, 2012, HBR guide to basic finance for managers. p. cm. –
(Harvard business review), ISBN 978-1-4221-8730-2 (alk.paper)
Premise of the Book
WHAT IS IT TRYING TO ACHIEVE?
This guide is actually a collection of articles by the professionals and professors which aim to
provide a comprehensive but in a brief way, guide about the basics of finance to managers who
are not much familiar with necessary financial concepts. Most of the articles included in the
guide focus on financial statements’ easy to-understand explanation with practical examples &
case studies and how these financial statements can be used in the work place for the smooth
running of managerial tasks. It also shed light on the fact that cash and profit are not always the
same or equal and by thinking that they are equal can lead the mangers to taking bad decisions
for the company. Thus it is necessary for the managers to understand this phenomenon deeply
and take decisions in light of this fact. A case study on working capital, ROI and practical tools
for management decisions have also been discussed, This guide further explains to managers that
what are the things which financial statements don’t tell the mangers and the managers need to
know them.
IS THIS NEW OR USEFUL – HOW?
This guide is new in a sense that there is no such other guide which has compiled some important
articles about financial statements. There are articles written on financial statements and other
concepts discussed in this guide though.
A book has also been written on the same concept of making the managers and executives to
understand the basics of finance:
Farnandes, N. Finance for executives: A practical guide for manager. London: NPV publishing;
2005.
This guide is useful for every manager because it doesn’t only define and explain the concepts
but it has also accompanied them with practical examples. It also explains that how these
concepts can be effectively utilized, for example it tells the manager how and what a manager
should present to the board of directors for approval of budget or approval of a project etc. It’s
recommended for every manager as it’s easily understandable by even those managers who are
not experts in finance and not good with numbers because all this guide does is to teach the
financial concepts in the most easy way possible.
Background
UNDERLYING LITERATURE AND THEORY
The underlying literature include the key financial statements, the fundamental laws of business,
using statements to measure financial health, grow profits by streamlining the business, working
assets to boost growth, profit and cash and why cash matters, balance sheet levers, what’s
working capital model? A case study, what the financial statements don’t tell you and five traps
of performance measurement.
Arguments/Discussion
MAIN POINTS MADE BY THE AUTHOR
The author places importance on key financial statements and it has been stressed by the author
that understanding the financial statements including balance sheet, income statements and
statements of cash flow is vital for every manager. The authors of this guide argue that the
managers should not only believe in numbers. For this purpose they should understand the
financial statements deeply as these statements don’t always tell everything which is expected.
They should take other non quantifiable (qualitative) things into account too. The managers
should know that cash is an important aspect of the organization, that’s why managers should
also give focus to cash flow statement.
WHAT’S NEW?
All the concepts discussed in this guide are old. Thus the only new thing is that they have come
up with some practical examples from real world with every topic being discussed. Furthermore
it tells the manager how they can use these concepts efficiently and effectively in work place. It
also shines light on five traps of performance measurement and tells the managers to know these
traps.
WHAT’S REINFORCEMENT OF WHAT YOU ALREADY KNOW?
The articles in HBR guide to finance basics for managers reinforce the work of Ross (2013),
Pamela (2010), Faruk and Md Ahsan (2010), Lorenzo (2010) and Pablo (2006).
WHAT’S COUNTERINTUITIVE?
There is an article about importance of cash and its handling in this guide. It gives all its
attention to importance of cash for businesses while importance of focusing on profits has been
neglected. The guide should have included the importance of profits along with the cash as both
are interdependent. If there is no profits there is no cash and indeed it’s true that sometime even
with high profits a company won’t have cash but still profit should also be given as much
importance as given to cash.
Conclusions
WHAT THE AUTHOR THINKS ARE THE CONCLUSIONS
As it’s a comprehensive guide which include articles on different topics so it has more than one
conclusion. The conclusion according to authors of different articles are; understanding the key
financial statements and its applicability in work force is important for the success of every
manager, cash is as important as the profits and most of the managers neglect this fact while cash
and profits are not always the same or equal, there are things which financial statements don’t
tell the managers themselves but the managers have to get to know those things for better
comprehending the financial statements and finally it’s imperative to have knowledge of 5 traps
which hinder the performance management.
WHAT YOU THINK ARE THE CONCLUSIONS
In my opinion the overall conclusion of the guide is that comprehension of important aspects
such as financial statements, return on investment, working capital etc. is not only imperative for
finance managers but every manager either on lower, middle or upper level should learn the
basics of finance for their and organization’s success.
Quotes
IMPORTANT QUOTES WITH PAGE NUMBERS
The reason for recording the assets with historical cost is that if they were to be valued according
to market value then the company would have to do professional appraisal of all the assets every
year which is indeed a nightmare logistically (pg. 15,16)
Investors expect higher return from the company which is highly leveraged. (pg. 20)
The statement of cash flow is imperative because it tells the manager that how much cash they
are generating from the profits and also indicate that whether a company is able to pay the debts
and other bills. (pg. 28)
‘’Cash is the oxygen supply of a company’’says Charan (a well known CEO of Charan inc.) and
it makes a company able to stay longer in business. (pg. 34)
Ration analysis is a way of digging deeper in to the financial statements. (pg. 43)
Financial ratios help a company to compare itself with the competitors and average prevailing in
the industry. (pg. 49)
Wall street uses three indicators to do valuation of a company; PE ratio, Earning per share and
growth indicators. (pg. 54)
A company should streamline all the products being produced and all the activities being
conducted and remove those activities which cost more and are less productive, this a company
can go towards the growth. (pg. 61)
Impact of supply chain on return on investment is usually ignored by the companies while supply
chain accounts for about 80 percent of a company’s overall costs. (pg. 63)
By giving attention to customer focused supply chain can improve the return on investment by
30 percent. (pg. 64)
Unless and until a company doesn’t find extra sources of cash, the increase in sale will never
give it the ability to catch up. (pg. 68)
Financial statements also give the managers idea that what kind of employees (expertise) they
need to hire. (pg. 81)
Period of days sales outstanding and working capital that is required to run a business have
positive relation means if DSO increases the amount of working capital required to run a
business also increases. (pg. 87)
Return on investment analysis gives idea financial results or consequences of two businesses.
(pg. 106)
Operating leverage is very risky. If company passed the break even point then it can be a very
good thing for the company but a company never achieve the break even level then the company
can suffer big losses. (pg. 121)
A software company can be bought for more cash than book value because the buyer might want
to buy the intangible aspects of the company. (pg. 132)
HOW MIGHT THESE QUOTES BE USEFUL TO OTHERS?
It can help the researchers to use these quotes for their research purposes. It is also useful for any
manager who wants to have quick grasp upon the important concepts related to finance as these
quotes almost cover the important points being discussed in all the articles of this guide.
Ultimately anyone can get quick summary of main points discussed in this guide.
Future from here
WHAT”S THE AUTHORS NEXT STEP?
This guide has covered most of the important concepts of finance that can help any manager in
his or her tasks and major decision making. The authors can bring some more important topics
like forecasting, budgeting, auditing, topics related to economics and contemporary issues in
finance.
WHAT OTHER WORK DO YOU THINK THIS RELATES TO?
Farnandes, N. Finance for executives: A practical guide for manager. London: NPV publishing;
2005.
I. M. Pandey ( 2002). Financial Management. Vikas Publishing House Pvt.
Ltd., New Delhi.
F. Pablo (2006). Cash flow is cash and is a fact: Net income is just an opinion.