Managing By the Numbers:  A Commonsense Guide to Understanding and Using Your Company’s Financials
Chuck Kremer and Ron Rizzuto with John Case (2000) – developed in partnership with INC magazine

Our Quick Take:  This is an excellent resource for learning the basic uses and limitations of financial statements, as well as understanding how each of them is constructed.  Their concept of the three bottom lines is foundational to business financial analysis and should be understood by all businesses beyond the sole-proprietor level.  We offer a similar but slightly different perspective in Managing the Four Bottom Lines.

Another great concept in this book is the Financial Scoreboard/Mobley Matrix™.  Developed by years ago by an IBM executive Lou Mobley, the Mobley Matrix™ is an invaluable tool for learning how financial statements relate to each other, moving from the beginning balance sheet to the ending balance sheet by way of the income statement and cash flow statement.  However, the format has practical limitations.  In our opinion, it’s better to teach with the framework, then focus on the actual financial statements, the financial scorecard with the four bottom lines (net profit, operating cash flow, return on invested capital and net profit per employee) and any additional financial analysis pertinent to the business.

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Cash Rules: Learn and Manage the 7 Cash-Flow Drivers for Your Company’s Success
Bill McGuinness (2000) – from Kiplinger’s Business Management Library

Our Quick Take:  This book is for the business owner who has a fairly good grasp of financial statements and how they flow together.  While it does cover the basics of financial statements and some definitions of related terms (including the difference between the frequently confused gross margin and contribution margin), its real impact is in providing understanding of the seven cash flow drivers.

One great tool from this book is the Uniform Credit Analysis®, a bank loan cash flow analysis spreadsheet on pages 52-53.  This is the primary spreadsheet used by commercial bankers, a group intensely interested in cash flow, and every business owner should understand it.  An understanding of the tools and thought processes of commercial bankers is invaluable when preparing presentations for your own commercial banker.

This book also explains the two sides of gross margin: (1) increasing the real and perceptual value equation, and (2) rigorous cost control, much of which comes from reducing errors and non-value-added steps in the operating process.

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