Financial Intelligence for IT Professionals

The Story of the Numbers

Julie Bonner

• Publisher: CRC Press
• Year: 2021
• ISBN:
  9781000487374
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

There are many books written for the accounting and finance community. However, there are very few books written to help the non-financial career professionals who still need to understand the conceptual fundamentals of accounting and finance. In 20 years of teaching this material to non-financial professionals, Dr. Bonner has perfected a teaching approach that works to help the non-financial professional engage with the material to use financial information in leveraging their career without becoming overloaded with information that is not helpful to them. Learning this material takes repetition, application, and building the thinking processes necessary for effectiveness. Many think the challenge with finance is the math, but as this book will demonstrate, it is a conceptual problem. If you understand the conceptual framework, you will understand the math.

Dr. Julie Bonner is currently a tenured professor at Central Washington University in the information technology and administrative management department. Her career has spanned business and education for over 30 years. Initially, she received a Bachelor of Science degree in accounting, whereafter she earned an MBA and then a doctorate in organizational leadership.

Part One Why Being Financially Savvy Matters

DOI: 10.1201/9781003110613-1

Most of the time, if you are a non-accounting and non-finance professional, you can get through most days of your life without having to think much about topics that touch the finance and accounting world. However, as you move through your professional and personal life, there will be times when you absolutely should be familiar with accounting and finance terminology.

There is nothing worse than finding yourself in a professional situation where you do NOT take action because you do not understand this world. You get caught with financial repercussions in a role where having a baseline understanding of these concepts would have helped you avoid pain or embarrassment. The book aims to prepare you for financial situations you encounter in your career progression and how to utilize all resources for your learning.

In Part One of this book, you discover the many reasons why you can help yourself achieve more in your career and personal life if you embrace learning the world of finance and accounting. Of course, you are not training to be an accountant. Instead, you gain confidence in interpreting accounting and finance information that you could encounter in your life, professionally and personally.

Additionally, you work on various situations that prepare you for what would require you to understand the financial impacts of the decisions and choices you can encounter through your professional and personal life. For instance, you will have professional choices, such as taking on a job that requires a certain amount of financial savvy, or you will have personal decisions about investing your hard-earned money. Either way, you want to be prepared for those moments!

Included in this landscape, you will also be thinking about when it might be a good time to move on from an employment situation. People have been surprised with a business closing, and few employees saw it coming. You do not want that to be you! For instance, during the financial crisis in 2009, General Motors went into bankruptcy proceedings. Was it possible to see this coming? Yes, there were clues, especially in the cash flow statement.

Finally, this initial introduction will give you an idea of how you can learn this material. Learning this material is NOT hard, but it does require practice. Thus, you learn the background of why this topic is important and how the book presents your learning opportunity, but you follow a road map on how you can train yourself in learning these topics.

As you start on the topics in this introductory section, some of the information resonates with you more than others. When you are learning accounting topics in other areas of the book, if you are triggered emotionally by understanding the material because of match anxiety or other challenges – come back to this section as often as possible. Figure out which myth or trap about learning this material is tripping you up and re-set your determination. Many students have learned this material and gain a lot of confidence, and I am sure you can add your name to the list!

Topic 1: How Financial Clarity Gives You Professional Leverage

Why would anyone other than a geeky, numbers-oriented, pocket protector-wearing individual want to know anything about the world of accounting and finance? You might be thinking, “I can have a perfectly nice career not knowing anything about this topic.” Why should you be open to this information that can bring tangible results to your life and career? Here are a few very tangible reasons to learn about this topic, no matter what your training or background may be in the world of finance and accounting.

Since learning is an activity that requires an investment of time, anyone learning a subject must identify reasons why you want to invest in a topic of study, especially since accounting and finance are topics that, on the surface, feel too difficult to comprehend. As you read these reasons, your job is to assess how much these ideas align with your circumstances. Any learning inquiry must have a significant “why,” or you will not follow through with learning.

Do You Know If Your Employer Could Be in Trouble Financially?

In 2001, Enron Corporation went bankrupt¹. In the process, employees lost their retirement funds. Could this happen to you? Is it inevitable that we are at the mercy of others and their financial decisions? Was it possible for Enron employees to question what was going on and have had the insight to see the financial consequences beforehand? Employees can study company financials and see these troubling signs in the financial performance of a company. You have to learn from financial debacles like Enron and other companies to know what the warning signs are to make your own decisions about staying or leaving.

Along the way, when a company is setting itself up for failure, there can be signs of financial distress. The bankruptcy of Enron took a while to arrive. Plus, some decisions do not look like an issue on the surface. In some cases, you may not know exactly how a financial decision is executed. However, the more you study companies you work for and their financial decisions, you will start to see patterns that can cause you to pause and reflect. While you may not know all of the details, you can train your brain and your gut to sense when something might be going wrong, and then you can make your own choices that are best for you, your family, and your career.

Part of your understanding of what to look for will come with a consistent analysis of a company. There are things to think about all along the way. One thing that will help you find these issues is the book sections that show you how to do ratio analysis. However, as you study a company over time, you will become very familiar with their performance, and that is crucial to noticing something going askew in the financial decisions the company is making.

Do You Want to Start Your Own Business?

Starting a business may be your goal. Starting a business may require a significant investment of energy from a person in time and other resources. Small businesses often fail because of fiscal management challenges, especially in terms of cash flow management. Thus, learning about the financial aspects of planning and running a business is crucial to your success. In starting your own business, you will want to know some specific things about finance, such as planning finances, assessing financial statements, and the essentials of cash flow management. People have started businesses with varying levels of financial understanding. Still, those who are successful over time have to understand finances even if they do not keep the books and do the accounting.

In starting your own business, you may want to purchase an existing business. One of the reasons you may want to do that is because you do not want to go through the start-up pains. However, you will want to know how to read financial statements and specific questions you want to ask about the business’s financial model in purchasing a business. In this book, you will learn how to do these critical pieces of analysis, OR at the very least, you will feel comfortable hiring a professional to help you!

Do You Want to Grow Your Business or Otherwise Invest in Other Businesses?

For some individuals, you want to study financial information regarding companies that you can invest in with the stock market. Examining financial information is a fundamental analysis that can help inform you about your investment decisions. For most people, these decisions are made by fund managers, and then you can buy into a fund of different stocks. But someone is doing this analysis, and you can learn how to do this analysis if you want to make your own decisions about investing directly in companies.

In addition to investing through stocks, you may own a business someday and decide that you want to grow your business. One way you can develop a business is to purchase another company like yours or invest in a complementary business. When you merge with or acquire another business, you will need to assess financial information and dig into the financial backbone of the company. Either way, you will use the same approach for financial analysis.

The ratio analysis we conduct in the book will give you insight into any company for investment purposes. At first, doing ratio analysis may feel tedious because you have to build your template, and training your mind to understand the numbers can feel daunting at first. However, the book teaches you how to think about these numbers, what they represent, and what they tell you about financial performance. The key to understanding is practice, which is why I suggest practicing on a company your work for or have worked for so that you have the context for these numbers, and that will build your confidence as you start to look at another company.

Do You Desire to Obtain a Managerial, Directorial, or Executive Position?

Some individuals enjoy being in a contributor role in a company. However, for some, the goals are higher. Some people want to move up into management or become a department director or an executive. Regardless of the level of employment, you can impress an interviewer by having some knowledge of the financial aspects of a company. This strategy can be as simple as having read information about a product or service that has been having challenges, and you can ask them about the gross margins on the product. Or that you have seen particular financial performance in the headlines, and you can ask an intelligent question about that to a potential employer.

Topic 2: How Understanding the Numbers Gives You an Edge

It is possible to have great careers and escape having to engage with numbers, but there is a high likelihood that as you advance, or if you want to start your own company, numbers will become a part of your life. It is possible to have an excellent accounting resource, such as an accountant, to work with, but to empower yourself is the purpose of this book. You may still want to employ an accountant, but you will be much more in control if you understand what to look for and how to monitor an accountant. No matter your career trajectory, having a baseline of financial literacy is essential to your career path.

The Difference between Finance and Accounting

Accounting is a specific discipline that encompasses all of the building blocks of how financial information is created. In this book, you will primarily NOT be learning accounting because a large part of the accounting world is about journal entries, preparing reconciliations, and preparing financial statements. Generally, accountants will be tasked with those activities. You will learn specific terms associated with the accounting world so you can ask questions or resolve issues, but you will not be learning the rules of debits and credits, for example.

Finance is the world that encompasses how you use financial information to make decisions in a business. These worlds do overlap, but essentially, you will be more focused on the finance side of this world than the accounting side.

For example, a CFO (chief financial officer), if your company has one of those, will be in charge of all of the accounting and finance functions within the company. Thus, all finance and accounting departments will report up to that role. However, the accounting and finance functions will be split among smaller groups.

Accounting departments would be functions like groups that process accounts payable, auditing departments, manage cost accounting, or process accounts receivable. Finance departments may be functions like capital budgeting, mergers and acquisitions departments, or financial reporting.

In a small business, all of these roles, or departments, might be housed in only a few people who wear multiple hats and perform many of these roles rather than separate departments. A small business will possibly contract out for these roles when they need them.

Utilizing Your Financial Resources Effectively

Besides knowing the numbers and what they mean, you also want to consider how you will take advantage and leverage all the financial resources you have at your disposal. For example, do you know where to find financial information on a company? Do you have a relationship with financially literate people?

Part of your work to increase your financial literacy is to learn where financial information is located and how to assess that financial information. Talk to people about this information, and the more you do this, you will find that you will understand a lot more about this world over time. These habits will help you to develop your knowledge and develop a gut feel for the numbers.

Break Down Silos

We live in a world that encourages people to have specialized knowledge. This approach is great for team members in an organization because you want highly specialized people. However, as you move up in an organization, or if you are going to be an entrepreneur, you may still have special skills, but you will have to learn more about other aspects of a business. As an entrepreneur or business executive, you want to develop relationships and leverage your time through other individuals. Whether these individuals work for you or not, if you cultivate these relationships in the right way, nothing can get in your way of achieving what you want to achieve in business. Even as a team contributor, utilize this time to get to know accountants. There will be tips on what kinds of questions to ask throughout the book, just to help you get started.

Understanding Financial Decisions and the Connection to...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Contents
• List of Figures and Tables
• Preface
• Acknowledgements
• List of Abbreviations
• Definitions
• Part One: Why Being Financially Savvy Matters
• Part Two: Revenue and Expense: The Basics of Income Statements
• Part Three: Assets, Liabilities, and Equity: Understanding the Balance Sheet
• Part Four: Cash Flow Statements
• Part Five: The Power of Financial Ratios
• Part Six: Special Topics
• Appendices
• Index