Name: Financial Intelligence
Rating: 3.3 (118 reviews)
Author: Karen Berman + Joe Knight with John Case

What’s in it for me? A crash course in cash.

Intelligence – you’re either born with it or you’re not. But financial intelligence is different – it’s something anyone can acquire. It doesn’t matter if you’re inexperienced with numbers, or if the sight of a balance sheet makes you break out in a cold sweat. These are things you can learn.

And they’re worth learning, particularly if you’re a manager or a decision maker at your company. If you understand how to measure financial success, you can make better decisions and help improve the company’s results. You’ll also feel much more confident in your own abilities.

Of course, we can’t cover all aspects of finance in this short Blink. But we’ll give you a crash course in cash – why it matters, and how to interpret cash flow statements.

So, let’s get started.

Companies need cash – not just profit.

One day, an executive at a Fortune 100 company received a request from a client who had a credit line of $100 million. Could the company send the client the funds? For a big corporation, this was a pretty standard request. But when the executive talked to the treasury, she was shocked by what she discovered. They didn’t have the funds. The company had run out of cash!

This story goes to show that even big companies make basic mistakes. And it’s a surprisingly common issue – so many managers fail to pay attention to cash.

People who are financially intelligent understand just how important cash is. Take Warren Buffett, for instance – perhaps the most successful investor of all time. When Buffett looks at financial statements, he pays close attention to cash flow and owner earnings. That’s a valuation of how much cash a company can generate over time.

Remember, companies need cash to stay alive. Profit is all very well and good, but you can’t use it to pay for computers and other supplies. In order to pay for things, you need cash – real money.

So, if you want to be financially intelligent, you should keep an eye on cash flow. Think of cash as a reality check – an insight into how the company’s really doing right now.

Also, if you understand cash, you’ll find it easier to make good business decisions. For instance, let’s say your company is profitable but lacks cash. In that case, you need financial expertise.

But if it’s the other way round – the company has cash but isn’t making a profit – you should focus on operational expertise instead. Look for someone who can assist you in reducing costs or generating more revenue.

That’s just one example. Understanding cash can help you with all kinds of things, leading to improved financial results. So be like Buffett, and scrutinize your next statement.

Learn the language of cash flow.

Admittedly, cash flow statements can be pretty confusing, and even finance people have trouble sometimes. Part of the problem is the labeling. What do those categories really mean?

Let’s start with the basics. A cash flow statement shows the inflows – the cash moving into the business. And then there are the outflows, which is the cash moving out.

Final Summary

Now you know why understanding cash is an essential part of financial intelligence. And you can interpret the different categories of inflows and outflows, as well as what they mean for your business. In turn, this makes it easier to ask the right questions – and make better decisions.