Started reading a published copy of this book. It was great and full of insights about branding. Readers of this book will benefit from its contents.

HOW FINANCE WORKS

When I was twenty-two, I was selected for an exchange program in Singapore and decided to take up a few units of finance.

Those classes did not exactly go very well for me.

I could understand the material just fine, and readily appreciated the intuition behind the core principles—namely, that money now is more valuable than money later; that it’s possible to discount cash flows to the present especially for valuation purposes; that equity is more expensive than debt; etc.—but I would do horribly at exercises. There would be all manner of silly mistakes on my spreadsheets, as I would incorrectly impute interest rates or compounding periods or amortization computations (or all of the above). Even while working through examples where the correct answers were readily demonstrated, I would labor over and over again just to get results that matched.

As someone who gets obsessed with squaring the circle, suffice it to say that this felt like a maddening experience.

I eventually got over it and didn’t do too badly in the end, but I’d like to think that my experience is typical of most anyone who gets their feet wet in finance. Finance is hard. It can trip you up if you’re not careful (and sometimes even when you are). Worse, when you are not exactly mathematically-inclined, it’s a subject that can come across as inscrutable, if not intimidating.

Harvard Business School Professor Mihir Desai has written a useful manual to help people better appreciate the subject with How Finance Works: The HBR Guide to Thinking Smart about the Numbers.

How Finance Works occupies the middle ground between a textbook and, in a manner of speaking, Cliff’s Notes (albeit of a more sophisticated variety). It’s structured in the way that discussing the intricacies of finance requires, with the requisite examples to illustrate key points. But it doesn’t go through formal proofs and seldom relies on formulae (other than to show them), opting instead to convey the intuition behind core concepts through brief case studies and insights from C-suite executives of various companies, each of whom are quoted at length and provide anecdotes from their actual experience of working through strategic corporate opportunities from the viewpoint of finance.

In walking readers through how finance works, Desai acquits himself well as a more than capable guide. His explanations are clear and with a practical bent as if to tell readers, “Here’s what this means and how it applies in the real world.” Much of the ground covered in How Finance Works is corporate in nature, which will be immediately helpful to those lacking any prior formal training in corporate finance and would like to know more.

For my part, How Finance Works is exactly the kind of book I would’ve wanted as reference material back when I was twenty-two, on an exchange program, and taking up finance.

Mihir Desai is the Mizuho Financial Group Professor of Finance at Harvard Business School, and his latest text, HOW FINANCE WORKS, is filled with charts, diagrams and equations. As such, Desai takes a complicated subject about which he is very knowledgeable and tries to simplify it for those who are relatively new to the discipline. Building on his almost two decades of teaching experience, he deftly employs interactive exercises and case studies to prompt questioning and learning. Desai is also the author of Wisdom of Finance (2017), which was long-listed for the Financial Times & McKinsey Business Book of the Year Award. (Apr. 2019, Harvard Business Review)

Awesome book on the subject by Mihir Desai is what this book is. I have been trying to educate myself for quite sometime about Stock Market and Investing. I have read few books on the subject matter and while most books that I have read addresses at least one to two chapters on decoding a financial statements, I have never found the coverage satisfactorily. They just list definitions and equations but in this book that is entirely dedicated to understanding the subject matter of finance, the author takes a didactic approach and walks you through the concepts in a very tutored environment. The definitions are clear and easy to understand and periodically there are vignettes to make you reflect on whatever is being discussed. If you are looking for a book to familiarize yourself with financial concepts and lingo or learning how to evaluate a company before investing in it or are starting a job or already in a job that requires you to communicate with financial personnel this book is for you. I would recommend this book to anyone who is looking for a book that is easy to read and comprehensible enough even for someone with no commerce or business background.

I have taken a Corproate Finance class. I found his book interesting and fun, especially the detective way of looking at numbers and what makes them interesting. Fun way to introduce rookies to finance with all the formulas.

"Play detective and create a narrative"
Debt/EBITDA ratio combines info from balance sheet and income sheet.
Formulas, Reflections and Real-World perspectives
Consumption inequality
Explains interesting and intriguing numbers.
Blind tasting of companies
Case studies:
Timberland ROE from 1994 to 1998 show how ROE can be influenced by leverage (why we need ROC) and how the company did a turn around where its ROE doubled compared to the industry average when it started coming from the right sources - profitability instead of leverage or productivity.

Quiz in the end

How Finance Works by Mihir Desai – 3 Stars
Publisher: Harvard Business Review Press
ISBN: 9781633696709

“Only prerequisites … curiosity and perseverance” so stated the author are required to get you through this book. Well, I’m retired now, but like my very successful service and consulting preretirement career where I ran into financial issues with clients and the 30 years of investing using Financial Ratios and other data, my continued curiosity and perseverance was not enough. After at least 5 passes, up to a least 10 in some sections, I still hadn’t successfully comprehended, even moderately, much of the lessons from Chapter 3 on. I did get a keen and quick insight of the important areas of Finance. The Intro and chapters 1 and 2 were very beneficial in introducing the key Financial definitions and data relevant to investors and those in Financial area careers. But, one needs to be prepared for some errors, such as on pages 34 and 35 where virtual company M is used for two different real companies.

I thought the exercise using the virtual companies to discover the real companies was a brilliant idea and a great way to get a grasp on the fact that ratios depend on the industry type and can not be numerically compared to other industries or even other countries where things like taxes are different. However, after three passes I did wonder whether the steps in this exercise could really be applied to the companies in my universe or whether it was a method derived from working backwards to make the exercise workable. Regardless, it confirmed what I learned over the many years of investing and added some new ammunition for forward progress. So, up through chapter 2, I would agree that a new individual to Finance and one like me with many years of touching Finance, but not into the bowels of it, and for all investors, that this book would be very helpful.

However, later the substitution of many diagrams and graphs became a shortcoming rather than an aid. I felt that the essential text describing a topic failed to adequately explain the forest and simply focused on the trees. My opinion is that it was more important to select many diagrams and graphs and fit them together than to give a comprehensive and logical written overview, explanation, and relation to the real world. Granted, the Reflections throughout were well placed and significant. But, I was less impressed with many unnecessary formulas and other detailed information that certainly was not pertinent to what I expected from this book, nor, I believe, would be of any importance to others. I finally concluded that this book was simply an outline of a Harvard course, but, without the interactions of an audience. Much of the relevance and constructive discussions appeared ignored. I suppose my example would be developing a customer presentation and publishing it without really capturing the effectiveness of it.

Thus, although I am most curious in Finance and Economics and have a very high level of perseverance, both qualities a must in the consulting arena, my interest to learn Finance to a detailed level waned when I retired and I could not read it from front to back as the author commented. So, I did test it as a reference and also concluded that since it lacked an index it was not very practical as a reference either, unless you were interested in rations, cash, and valuation chapters. All chapters were visited, hoping that from the Conclusion chapter I could pop back earlier to glean reasons for the conclusions. That also did not work to my satisfaction.

For all the above reasons I would recommend that a rework be done that emphasizes the missing student interactions and discussions and replace some of the diagrams, graphs, etc. that clutter the important area of Finance with more effective, logically sequenced text.

Reviewer: Rich

The book has an easy and comprehensive overview of different aspects of finance. Books on finance can have a different complexity of the content. This book is easy to read, it has a lot of graphs and explanations, gamified approach to the material. What is specifically interesting - the quizzes after each chapter. They have a great concluding element in them about the topic explained in the chapter. If you are new to finance, this book can be a good starting point to start learning.