Preface

Question 1

What is Financial Intelligence?

Answer 1

Our philosophy is that everyone in a company does better when they understand how financial success is measured and how they have an impact on the company’s performance. Our term for that understanding is financial intelligence.

Financial intelligence means understanding where the numbers are “hard”—well supported and relatively uncontroversial—and where they are “soft”—that is, highly dependent on judgment calls

Question 2

How does improving financial intelligence helps the organization?

Answer 2

Greater financial intelligence, we’ve learned, helps people feel more involved and committed. They understand better what they are a part of, what the organization is trying to achieve, and how they affect results. Trust increases, turnover decreases, and financial results improve.

Question 3

What four skill sets are included under financial intelligence?

Answer 3

1. Understanding the foundation. Managers who are financially intelligent understand the basics of financial measurement. They can read an income statement, a balance sheet, and a cash flow statement. They know the difference between profit and cash. They understand why the balance sheet balances.
2. Understanding the art. Finance and accounting are an art as well as a science. The two disciplines must try to quantify what can’t always be quantified, and so must rely on rules, estimates, and assumptions. Financially intelligent managers are able to identify where the artful aspects of finance have been applied to the numbers, and they know how applying them differently might lead to different conclusions.
3. Understanding analysis. Financially intelligent managers don’t shrink from ratios, return on investment (ROI) analysis, and the like. They use these analyses to inform their decisions, and they make better decisions for doing so.
4. Understanding the big picture. A business’s financial results must always be understood in context—that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations, changing customer needs and expectations, and new technologies all affect how numbers are interpreted and what decisions should be made.