What is FINANCIAL INTELLIGENCE? What does FINANCIAL INTELLIGENCE mean? FINANCIAL INTELLIGENCE meaning - FINANCIAL INTELLIGENCE definition - FINANCIAL INTELLIGENCE explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/... license.
Financial intelligence is the knowledge and skills gained from understanding finance and accounting principles in the business world. Although a fairly new term, financial intelligence has its roots in organizational development research, mostly in the field of employee participation. Financial intelligence has emerged as a best practice and core competency in many organizations leading to improved financial results, increased employee morale, and reduced employee turnover.
Many organizations include financial intelligence programs in their leadership development curriculum. Financial intelligence is not an innate skill, rather it is a learned set of skills that can be developed at all levels. The four areas of understanding that make up financial intelligence are: Understanding the foundation. Financial intelligence requires an understanding of the basics of financial measurement including the income statement, the balance sheet, and the cash flow statement. It also requires knowing the difference between cash and profit and why a balance sheet balances. Understanding the art.
Finance and accounting are an art as well as a science. The two disciplines must try to quantify what can't always be quantified, and so must rely on rules, estimates, and assumptions. Financial intelligence ensures people are able to identify where the artful aspects of finance have been applied to the numbers, and know how applying them differently might lead to different conclusions. Understanding analysis. Financial intelligence includes the ability to analyze the numbers in greater depth. This includes being able to calculate profitability, leverage, liquidity and efficiency ratios and understanding the meaning of the results.
Conducting ROI analysis and interpreting the results are also part of financial intelligence. Understanding the big picture. Financial intelligence also means being able to understand a business's financial results in context - that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations and changing customer needs and expectations as well as new technologies all affect how the numbers are interpreted.
Financial intelligence is not just theoretical book learning. It also requires practice and real world application. In the corporate world, managers can display financial intelligence by speaking the language, that is, asking questions about the numbers when something doesn't make sense, reviewing financial reports and using the information to understand the company's strengths and weaknesses, using ROI analysis, working capital management, and ratio analysis to make decisions, and identifying where the art of finance has been applied. In 1954, Peter F. Drucker, in his groundbreaking book, The Practice of Management, wrote the following. " should know how his work relates to the work of the whole. He should know what he contributes to the enterprise...if he lacks information, he will lack both incentive and means to improve his performance." "It is in the best interest of the organization that the worker have the information."
