Balance Sheet

Real Assets

Can you identify real assets when you see them? This question may not be what you are thinking. This posting relates to a similar one called When an Asset is Not an Asset.

Aren’t All Assets Real?

Stop for a moment and consider some of the things categorized as assets on the balance sheets of various companies. These may include, among other items: Cash and Short-Term Investments, Accounts and Notes Receivable, Prepaid Expenses, Fixed Assets (Land and Buildings, Furniture and Equipment, Leasehold Improvements, etc.), Long-Term Investments, Patents, Goodwill, and other items.

Now, on the face of it there is really nothing wrong with Read the rest of this entry »

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Financial Measurements that Matter

In business we typically measure a lot of things, but when it comes to financial information are we making and utilizing financial measurements that matter?

What Does That Mean?

To understand what I’m referring, let’s look back at the posting Some Key Financial Indicators where we briefly considered Read the rest of this entry »

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Make Profit Count

Ever wondered why a company that seemed to be doing so well suddenly failed? Often times the reason is that management took their eyes of the ball, with the ball being defined as cash. I touched on this earlier in Cash Flow – The Bottom Line. Basically the issue comes down to realizing that in order to make profit count it is essential that profit is converted to cash.

Cash is Critical

Without adequate cash a company will be hard-pressed to pay bills. I’ve had clients and been an employee of companies that were very profitable on paper. But, that’s on paper only. If you looked only at Read the rest of this entry »

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Misleading Financial Indicators

What do crime statistics and business metrics have in common? I was recently reading about the possible manipulation of statistics for a city’s crime rates, and that got me to thinking about how a similar thing happens with a business’s financial indicators.

Like What?

Sometime a particular statistic is highly misleading. For example, a manager who is responsible for increasing sales may indeed be able to report that Read the rest of this entry »

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Do You Really Need Debt?

How many small businesses with debt really need it? If you are a small business here are some things to consider.

A Faulty Assumption Perhaps

As I follow others thoughts I cannot help from but be surprised at how many think that in order to succeed in business they have to take on debt. What makes this interesting is that so many of these are start-ups or very young businesses. Reading between the lines, I have come to the conclusion that many have simply assumed they would have to borrow to start or Read the rest of this entry »

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Actual Company Debt

Do you really know your actual company debt? This may seem like a silly question, but there is more to it than you may think. Let me explain.

Leases

There is a proposal from U.S. and international accounting regulators to change how a company should record and account for what is referred to as operating leases. Here I just want to consider the impact on the lessee. First, let’s look at some Read the rest of this entry »

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Operating Cash Flow Defined

Businesses often focus in on net income and fail to recognize the significance of cash flow (see Cash Flow – The Bottom Line) and what determines cash flow (see Cash Management-It’s Not About the Cash Account). Even when understanding the importance of cash flow and what generates it, there are some additional aspects to understand.

What is Operating Cash Flow

In a future blog I will show how the cash flow statement is created, but for now let’s just identify the three main components of the statement, which are: Read the rest of this entry »

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Understanding the Debt Ratio

Most of my recent postings have concerned how businesses are financed and how to measure the returns on those investments. Understanding the debt ratio will help you better understand the financing of a business.

What is the Debt Ratio?

The formula for calculating the debt ratio is:

Debt Ratio = Total Liabilities / Total Assets

(Note that this is expressed as a percentage)

Using a sample balance sheet from an earlier posting, let’s see that calculation. Read the rest of this entry »

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What is Debt Really?

Take a look at your company’s balance sheet and see if you identify everything that is debt. Is there anything hidden?

A Simple Example

Let’s consider the balance sheet below and see if we can form some conclusions.

what is debt

When we look at this balance sheet we could come to several conclusions. One, we might consider debt to be only Read the rest of this entry »

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What is Return on Capital Employed?

The return on capital employed is probably not a metric that many small companies calculate, but it can be very revealing about financial health. In some prior postings we looked at several ways of measuring a business’s return. Among those were return on assets and return on equity (see Two Measures of Financial Return). We also look at return a different way in the posting Debt Coverage. See those postings if you want to know more about these very useful measurements.

It is important to understand that there are two main sources of capital; one is Read the rest of this entry »

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