This paper is a review of the book titled, Finance for nonfinancial managers: 24 lessons for understanding and evaluating financial health, by Katherine Wagner. The book will help managers from non-financial background to understand the languages and techniques used in finance. It can enhance the participation of these managers in financial matters and decision making. Complex financial lessons are presented in a form that could be understood by people from non-financial backgrounds. (Wagner, 2005)
The first chapter of the book reviews basic terms used in recording, classifying and summarizing financial transactions. Knowing these terms will help the manager to interpret them in the right context. Some of the key account and financial terms discussed under this topic include: accounting equation, revenue, expenses, capitals, withdrawals, fixed cost, variable cost, transactions, etc. (Wagner, 2005)
Every activity in business is related to finance and thus understanding finance will be an advantage in once career. The accounting languages dealt in the book will help managers in their day to day experience. In order to drive financial performance in business, it is essential that managers understand financial operations. Subsequent lessons are on income statement, financial statement, balance sheet analysis, cash flow analysis, financial health check, reading annual reports, investment appraisal, working capital management, cost accounting for decision making, PBF as a planning and controlling tool, etc. (Wagner, 2005)
The book teaches the manager the components to be included in the income statement. Understanding financial terms and equations will help to generate account statements. The books enable an easy transformation of readers from financial terms to financial statements. In order to prepare an income statement, it is necessary to know terms in the income sheet-like total revenue, contribution, employee benefits and other expenses, earnings before interest and taxes, provision before tax, provision after tax and the P/E ratio. The book not only teaches the meaning of these terms but also the equations that are employed to calculate each of the components in the account statement. (Wagner, 2005)
The balance sheet of a company, reveals its financial health. The total assets of the company are balanced with liabilities, equity, reserves, and surplus. The assets are owned and used by the business. Assets are further divided into a fixed asset and current asset. Current assets are short-term nature and examples of current assets include bank balance, inventories, e.t.c. The book also educates managers on what labilities are and how they are worked out. Cash flow statement is another important statement in business. Cash flow statement provides information on revenue generated through operating activities, investment activities, and other financial activities. (Wagner, 2005)
Three key components of financial health checkup are profitability, solvency, and efficiency. Profitability provides information on the profit margin at which the company is operating. Solvency will help the manager understand the financial liquidity position and capital restructuring. Efficiency will help to know the turnover rate of the enterprise. Understanding finance and accounting are essential to making financial decisions like investments, loans, money market, paying off dividends etc. A dollar is worth more than a dollar in the future. Cost accounting will help managers understand the gross profit they are making on the products they sell. Cost accounting is done for internal use only. Understanding finance tool and concepts can help managers to assess company’s performance, maximize shareholders value and evaluate or develop financial strategies for the future. (Wagner, 2005)
References
Wagner, K. (2005). Finance for nonfinancial managers. New York: McGraw-Hill.
