This is not a DIY handbook for financial directors and investors.
The Penguin Guide to Finance is simpler yet also more complex than that.
In its first three sections, it seeks to explain the rationale and language of financial instruments, providing a road map to guide the reader though the labyrinth of corporate and shareholder value. In the final two sections, the author moves from microfinance to macrofinance and tackles financial markets, particularly in a national context.
Hugo Dixon used to edit the Financial Times' Lex column, which he left earlier this year to set up a news dot.com venture. For years, Lex was required reading - somewhere between the second cup of coffee and the broadsheet of choice - because Dixon and his colleagues invariably succeeded in explaining complex financial issues to the lay reader in a straightforward and entertaining way. As such, Dixon was tailor-made to write this guide to finance.
Nevertheless, the central device he uses to explain financial concepts - a dialogue between two fictional protagonists, the daughter of a media magnate and the senior partner of an investment bank - is a pain in the neck. Dixon is in danger here of being a little patronising, a little too clever by half.
As the book begins, Sir Marcus Mushkin, founder of Mushkin Multimedia, has just died, leaving a vast conglomerate of media interests in the hands of his feisty 31-year-old daughter Atalandi. (The passing resemblance to NewsCorp has been somewhat undermined since the departure of Elisabeth Murdoch from the fold). Atalandi turns for advice to Lex Buzzard, senior partner of the investment bank Buzzard Bros, and their ensuing conversations form the backbone of the book.
Atalandi questions, while Lex, who has seen it all, is 'ever so wise'.
Atalandi's knowledge of basic maths leaves much to be desired.
The opening chapters take the reader gently through the basics of risk and the cost of capital. The going gets tougher, when Dixon tackles economic value-added (EVA), having dealt with the trickier problems underlining the use of discounted cashflows (DCF). Following a brief but perceptive analysis of the merits of earnings before interest, tax, depreciation and amortisation (EBITDA) over old- fashioned price-earnings ratios, Dixon has a brave shot at assessing dot.com valuation methods, moving from companies with sales and no profits to those with almost no sales at all.
One of Dixon's calculations in particular stays in the mind: e-Bay's sales will have to grow by 30% a year for the next 37 years to justify its present valuation. From there, Dixon goes from the 'absolute versus relative valuation' debate to an interesting third section called Companies in Motion, which deals with the basics of financial engineering and mergers and acquisitions.
When the author turns to macroeconomics and the financial markets, a third person joins his Socratic dialogue - Sophia Butcher, prime minister of Fouliland. She asks Buzzard even more tiresome questions than Atalandi, covering basic theory on interest rates and currency movements. But the book livens up again at the end with a timely section on speculation, hedging, bubbles and crashes.
It must have been difficult to judge how much to pack into this stimulating book. I could have done with less of Atalandi and Sophia, shorter sections on government bonds and exchange-rate management and more on financial instruments and derivatives. But each to his own.
This is a book that will provoke and stimulate. It would be an ideal present for a bright arts graduate embarking on a career in the City.
He or she might then lend it to their boss, who probably doesn't understand half of the financial press. Except, of course, for the Lex column.