840. "How Finance Works" by Mihir Desai -- 3 Stars

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