The Significance of Financial Intelligence

As an emerging best business practice, financial intelligence is generally defined as the ability to acquire and apply knowledge and skills gained from understanding financial and accounting principles in the business world.    Every decision a company makes affects the financials, therefore, understanding accounting principles and the intelligence behind them leads to improved results. Although financial intelligence is an acquired skill, having the experience, understanding, and real-world application are invaluable assets.  

The collection of skills needed to become financially intelligent are extensive, but fundamentally include knowing how to read financial statements.   A company’s financial statement is used to demonstrate overall performance over a defined period. Most companies report financials quarterly with at least three different statements:  Income Statements, Balance Sheets, and Cash Flow Statements. Each of these statements combined help determine where the company made (or lost) money, where the company stands financially, and where the money went.  

1. The Income Statement reports how much revenue the company made, along with how much money was spent to get the revenue.  The income statement is comprised of all cash inflow from goods and services, minus expenses incurred to provide the goods and services.

1. The Balance Sheet represents assets, liabilities, and net worth of the company.  Assets are the company’s property including bank accounts, equipment/ machinery, real estate, or patents.   The money the company owes to others is the liability to pay others including loans, real estate leases, employee payrolls, or to suppliers for materials.   Net worth signifies what the company would be valued if it were sold or liquidated.  

1. The Cash Flow Statement is the movement of cash into and out of the business.  The cash flow statement helps the company have a detailed understanding of where the money comes from and where it goes.

Corporate finance may seem daunting, even for the “numbers” people, but knowing what the financial statements say gives the company a clearer picture of the financial health of the business.   The significance behind financial intelligence and how financial success is measured helps companies make decisions and take further action based on the positive financial impact of these decisions.   

At Randolph Business Resources, we specialize in financial statement reporting, budgeting, forecasting, and strategic planning.  With over 20 years of experience, we bring peace of mind and financial intelligence to you.  

By Susan Amsler

July 12, 2019

Randolph Business Resources, LLC.
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