Quotes from Karen Berman

First, he evaluates a business on its long-term rather than its short-term prospects. Second, he always looks for businesses he understands. (This led him to avoid many Internet-related investments.) And third, when he examines financial statements, he places the greatest emphasis on a measure of cash flow that he calls owner earnings.

EMPLOYEES ARE OUR MOST VALUABLE ASSET" (OR ARE THEY?)

You can think of operating expenses as the cholesterol in a business. Good cholesterol makes you healthy, while bad cholesterol clogs your arteries. Good operating expenses make your business strong, and bad operating expenses drag down your bottom line and prevent you from taking advantage of business opportunities.

Profit ? Cash (and You Need Both)

EBITDA, as we noted earlier, is no longer Wall Street's favorite measure to watch. Now the hot metric is free cash flow. Some companies have looked at free cash flow for years. Warren Buffett's Berkshire Hathaway is the bestknown example, though Buffett calls it owner earnings. As Buffett's term suggests, it's an important metric for entrepreneurial companies.

Accounting and finance are not reality, the are a reflection of reality, and the accuracy of that reflection depends on the ability of accountants and finance professionals to make reasonable assumptions and to calculate reasonable estimates.

Absent in such knowledge, what happens? Simple: the people from accounting and finance control the decisions. We use the word control because when decisions are based on numbers, and when the numbers are based on accountants' assumptions and estimates, then the accountants and finance folks have effective control (even if they aren't trying to control anything). That's why you should need to know what questions to ask.

Although this book focuses on increasing your financial intelligence in business, you can also apply what you'll learn in your personal life.

We are not big believers in making decisions solely on the basis of the numbers. But we do think that ignoring what the numbers tell you is pretty silly.

It might surprise you to know that, for the most part, finance involves addition and subtraction. When finance people get really fancy, they multiply and divide. We never have to take the second derivative of a function or determine the area under a curve (sorry, engineers). So have no fear: the math is easy. And calculators are cheap. You don't need to be a rocket scientist to be financially intelligent.

But GAAP rules are not what most people might think of as "rules." They don't take the form of imperatives, such as "Count this expense exactly this way" or "Count this revenue exactly that way." They are guidelines and principles, and so are open to interpretation and judgment calls.

Remember, accounting is the art of using limited data to come as close as possible to an accurate description of how well a company is performing.

As the economist John Maynard Keynes once pointed out, buying stocks is like trying to anticipate who will win a beauty contest. You want to choose not the person who you think is the most beautiful but the person you think everyone else will see as most beautiful. So it is with stocks: prices rise not just when a company turns in great performance but when a lot of investors believe that the future will bring even better performance

The art of accounting and finance is the art of using limited data to come as close as possible to an accurate description of how well a company is performing.

You don't need to be a rocket scientist to be financially intelligent.

If you boost your financial intelligence, moreover, you will very likely stand out from the crowd.