The Finance Book: Understand the numbers even if you're not a finance professional

361 Pages·2017·4.387 MB·English

by  Stuart Warner, Si Hussain

M01 The Finance Book 23646.indd 1 31/03/2017 17:29
Praise for The Finance Book
‘Reduces the time required by management to understand the essentials of
accounting and finance, enabling them to spend more time focusing on their core
business’.
Nasser Abbas, Joint Managing Director, Gearhouse SA (Pty) Ltd
‘This book is set out clearly and is often transformational. This is the go-to
source for clarity on how financial language and structures relate to real life
business situations.’
Derek Ion, Projects Director, Annesbrook Holdings Ltd (NZ)
‘If you need a clear introduction to the critical concepts of finance then this book
delivers it. A highly intuitive structure means readers can dip in and out and
learn as they go.’
Ken Lee, Head of European Equity Research, Barclays
‘A really helpful, well organised and easy to understand primer and reference
book for those who aren’t accountants but still need to understand the accounts ’.
Roger Siddle, Chairman, Cordium Group
‘Language is a key to understanding any field of specialty, and in this book
Warner and Hussain have managed to distill principles of finance and
accounting in such a way that the language that often mystifies non-practitioners
is clearly explained and meaningful. I wish I’d had access to this book when I
started my career in management. The Finance Book is an excellent reference
and a handy resource for any professional; it will be indispensable to aspiring
managers.  In the business world accountancy and finance are the ring that
binds managers, and this book clarifies and explains concepts; for many it
covers familiar territory, but for most non-financial professionals it will also
provide the information to fill the inevitable gaps in our knowledge.  Warner and
Hussain explain in a straightforward and clear manner the concepts that baffle
many managers from a non-financial background early in their careers.  The
language of business is presented unambiguously with relevant examples that
enable the reader to quickly grasp and embed concepts.’
André Snoxall, Director, Russau Consulting
‘A great book. At last, a guide that demystifies and encourages business owners
to practically understand financial matters. A must read.’
Gordon Vater, CEO, RiiG Limited
A01 The Finance Book 23646.indd 1 20/03/2017 17:02
‘This is fantastic! Full of real-time insights for business people who haven’t
studied accountancy.’
Daniel Feather, Partner, EY London
‘I wish I’d had a book like this at the start of my career! The bite-sized summaries
at the start of each chapter are a smart time saver for any busy business
professional.’
Ben Grover, Finance Director, UBM EMEA
‘Essential reading for any non-finance professional. This is an easy to read and
practical guide to the world of finance.’  
Paul Herman, Group CEO, Bluebox Corporate Finance
‘As an experienced CFO I can see the business value in all employees, not just
those in finance, having financial awareness and understanding. The Finance
Book does an excellent job in making finance accessible and articulating clearly
its relevance in practice.’
Phil Mickler, CFO, Jack Wills
‘A clear, concise and straightforward introduction to the world of accounting and
finance - which, to non-accountants, too often seems nothing of the sort’.
Tessa Park, Technical Partner, Kingston Smith LLP
‘The financial aspect of business is so important. This invaluable book helps
make finance simple and understandable and is a must-read.’
 Martin Port, CEO, BigChange Apps
‘The most user-friendly book for non-finance professionals I’ve ever seen!
Finance is the lifeblood of a business. Read this book and help your business live
and succeed.’
Daniel Mark, Chief Financial Officer, Adstream
‘This book is a thorough and well-organised overview for the non-finance
professional. Si Hussain has spent many years in the educational field, and this
comes through in the clarity of explanation and the numerous practical
examples. A must-have for the manager who is climbing the management
mountain.’
David Parmenter, author, Key Performance
Indicators and The Financial Controllers and CFO Toolkit
A01 The Finance Book 23646.indd 2 20/03/2017 17:02
The Finance Book
A01 The Finance Book 23646.indd 3 20/03/2017 17:02
At Pearson, we believe in learning – all kinds of learning for all
kinds of people. Whether it’s at home, in the classroom or in
the workplace, learning is the key to improving our life chances.
That’s why we’re working with leading authors to bring you the
latest thinking and best practices, so you can get better at the
things that are important to you. You can learn on the page or
on the move, and with content that’s always crafted to help
you understand quickly and apply what you’ve learned.
If you want to upgrade your personal skills or accelerate your
career, become a more effective leader or more powerful
communicator, discover new opportunities or simply find more
inspiration, we can help you make progress in your work and life.
Every day our work helps learning flourish, and wherever
learning flourishes, so do people.
To learn more, please visit us at www.pearson.com/uk
The Financial Times
With a worldwide network of highly respected journalists,
The Financial Times provides global business news, insightful
opinion and expert analysis of business, finance and politics.
With over 500 journalists reporting from 50 countries
worldwide, our in-depth coverage of international news is
objectively reported and analysed from an independent,
global perspective.
To find out more, visit www.ft.com
A01 The Finance Book 23646.indd 4 20/03/2017 17:02
The Finance Book
Stuart Warner and Si Hussain
Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney
Dubai • Singapore • Hong Kong • Tokyo • Seoul • Taipei • New Delhi
Cape Town • São Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan
A01 The Finance Book 23646.indd 5 20/03/2017 17:02
PEARSON EDUCATION LIMITED
Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: [phone]
Web: www.pearson.com/uk
First edition published 2017 (print and electronic)
© Stuart Warner and Si Hussain 2017 (print and electronic)
The rights of Stuart Warner and Si Hussain to be identified as authors
of this work have been asserted by them in accordance with the Copyright,
Designs and Patents Act 1988.
The print publication is protected by copyright. Prior to any prohibited
reproduction, storage in a retrieval system, distribution or transmission in
any form or by any means, electronic, mechanical, recording or otherwise,
permission should be obtained from the publisher or, where applicable,
a licence permitting restricted copying in the United Kingdom should be
obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn,
86 Fetter Lane, London EC4A 1EN.
The ePublication is protected by copyright and must not be copied,
reproduced, transferred, distributed, leased, licensed or publicly performed
or used in any way except as specifically permitted in writing by the
publisher, as allowed under the terms and conditions under which it was
purchased, or as strictly permitted by applicable copyright law. Any
unauthorised distribution or use of this text may be a direct infringement
of the authors’ and the publisher’s rights and those responsible may be
liable in law accordingly.
All trademarks used herein are the property of their respective owners.
The use of any trademark in this text does not vest in the authors or
publisher any trademark ownership rights in such trademarks, nor does
the use of such trademarks imply any affiliation with or endorsement
of this book by such owners.
Pearson Education is not responsible for the content of third-party internet sites.
ISBN: 978-1-292-12364-6 (print)
978-1-292-12367-7 (PDF)
978-1-292-12365-3 (ePub)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for the print edition is available from the Library of Congress
10 9 8 7 6 5 4 3 2 1
21 20 19 18 17
Cover design by David Carroll & Co
Print edition typeset in Stone Serif ITC Pro by 9/13 by SPi Global
Print edition printed and bound in Great Britain by Ashford Colour Press Ltd,
Gosport, Hampshire
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
A01 The Finance Book 23646.indd 6 20/03/2017 17:02
Contents
About the authors/ix
Acknowledgements/xi
Introduction/xii
part 1 Finance fundamentals/1
1 Finance personnel and systems/3
2 Cash versus accruals accounting/16
part 2 Primary financial statements/21
3 Profit and loss (P&L)/23
4 The balance sheet/30
5 Cash flow statement/37
part 3 Key elements of financial statements/43
6 Revenue recognition/45
7 Opex and capex/51
8 Business tax/56
9 Tangible fixed assets and depreciation/66
10 Goodwill and other intangibles/74
11 Stock/80
12 Debtors and creditors/88
13 Prepayments and accruals/95
14 Provisions and contingencies/102
15 Capital and reserves/111
16 Group accounting/120
A01 The Finance Book 23646.indd 7 20/03/2017 17:02
viii Contents
17 Revaluation/127
18 Impairment/135
part 4 Financial and regulatory environment/141
19 Accounting and financial reporting standards/143
20 External financial audit/149
21 Information in the public domain/157
22 Corporate governance and whistleblowing/164
part 5 Assessing financial health/175
23 Profitability performance measures/177
24 Working capital and liquidity management/186
25 Insolvency and going concern risk/194
26 Long-term solvency performance measures/202
27 Investor ratios/210
28 Business valuation/221
part 6 Sources of business finance/231
29 Equity finance/233
30 Debt finance/243
part 7 Financial management/251
31 Management accounts/253
32 Profitable pricing/260
33 Profit planning/268
34 Budgeting and forecasting/278
35 Investment appraisal/287
Appendix: Greggs 2015 Accounts /295
Glossary/325
Further resources/333
Index/335
A01 The Finance Book 23646.indd 8 20/03/2017 17:02
About the authors
Stuart Warner Bsc (Hons) FCA is the author of
four books on finance, an international speaker, a
teacher and a non-executive adviser. His goal is to
help businesses increase productivity and profits
through innovative and engaging finance training.
He delivers finance based training programmes
around the world across multiple sectors. Over his career, Stuart
has trained over ten thousand people. He has taught accounting
trainees for professional qualifications, and has delivered CPD
courses for qualified accountants and interactive courses for
non-finance professionals from graduate to board level. Stuart
studied management sciences at UMIST and became a Chartered
Accountant whilst working at PwC.
Stuart loves the fresh air and peace of the countryside, especially
the scenic hills of North Wales, so he decided to live in London
for ample doses of air pollution, loud noises and views of tall
concrete buildings. In his spare time he can be found falling off
his mountain bike or falling off walls whilst indoor rock climbing.
Saieem (Si) Hussain BSc (Hons) FCA is a chartered
accountant. He trained at KPMG and qualified
in 1990. Si has spent 25+ years delivering financial
and business training programmes to thousands of
professionals. He has held senior positions in several
listed companies, including Chief Executive of BPP
Professional Education.
Si runs an independent consultancy delivering financial and
business training, including coaching to senior executives. He
A01 The Finance Book 23646.indd 9 20/03/2017 17:02