“How Finance Works?” An MBA Masterclass Book by Mihir Desai (Reviewed)

The new HBR title (“How Finance Works?” by Mihir Desay) will go into less charted waters – demistifying the complicated financial ecosystem is no easy feat. Any controller worth his/her salt will confirm – the finance concepts are some of the most complicated in economics, even for the revered quants, who spend lifetimes trying to gain insights on companies’ numbers. So why should you buy this finance demistifying book and not another (say “Finance for Non-Finance” style)?

Start with the book’s introduction – “for many, finance is cloaked in mystery and quite intimidating”. Amen. Even for a decades-experienced finance professional, the finance domain remains a wide, hard to explore continent. It comprises:
• commercial finance (the work of managing the companies finances),
• financial services (supplying of money as a business, insurance),
• investments management (valuing companies, buying and selling financial assets),
• public finances etc.

Mihir Desai is certainly well positioned to present the finance complex topics to various audiences – he is a Harvard Professor of Finance with a certain gift for translating complicated examples into Disney-style stories. He does the same within this book, by putting forward real-world visual examples ahead visually-impairing spreadsheets filled with numbers and formulas. Certainly, his MBA classes experience has helped there – even the brightest business students find it hard sometimes to digest so many economics concepts & equations in a semester.

Another reason is the “How Finance Works?” book structure. I have seen at least a dozen of titles (“Finance for the Non-Finance” manager style) who start by pushing you to climb the (classical) ladder called Accounting – Financial Analysis – CFO steering. Well, “How Finance Works?” does look at demistifying finance differently. It is all encompassing – i.e. going beyond the commercial financial management realm. It actually attempts to look at the entire financial ecosystem from a systemic perspective – something rarely tried in a book written for the non-accademic audiences.

“How Finance Works?” has a clean, top-down chapter structure:
1. Financial Analysis
2. The Finance Perspective
3. The Financial Ecosystem
4. Creating and Measuring Value
5. The Art and Science of Valuation (the most interesting for myself – and very well written) and
6. Capital Allocation

Interestingly enough, doitinvest.com has read & reviewed a technical valuation book in 2012: http://www.doitinvest.com/valuation-measuring-and-managing-the-value-of-companies-by-tim-koller-marc-goedhart-and-david-wessels-a-financial-book-review/?preview_id=799&preview_nonce=704172361f&post_format=standard&_thumbnail_id=-1&preview=true. But whilst that valuation book remains a deep technical guide for the investments specialist, “How Finance Works?” takes a much lighter approach, with few less words and without sacrificing the hard principles content. For a quick overview (please note I avoided the word “introduction”) to multiple thorny finance topics, “How Finance Works?” remains a precious bookshelf resource – and I would strongly reccomend you to go through a copy from time to time, when you are lost in the dark woods of the numbers.

As mentioned before, doitinvest.com is not affiliated with HBR or any book publisher, but self-sustained – this is why we would appreciate if you would use the below Amazon link to buy a copy of “How Finance Works?”:

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