Posts Tagged ‘asset management’

Making the Best of Bad Financial Results

Is there are way for making the best of bad financial results? I think there is. In fact, sometimes bad results can be the catalyst for major improvement.

When Bad is Good

First let me say I’m not really suggesting that bad results are good. No, the good I’m referring to has to do with Read the rest of this entry »

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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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The Cash Conversion Cycle

If you read my postings on a regular basis I may sound like a broken record with how much I focus on cash. But again, as I’ve said before, “Profit is nothing until it is converted to cash.” See Cash Flow – The Bottom Line. Now I want to delve into how efficiently we convert financial activity to cash.

Cash Conversion Cycle Formula

First we need to identify some abbreviations and definitions: Read the rest of this entry »

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Productivity of Fixed Assets

I remember a client a few years ago who tended to make what he considered bargain purchases of equipment. Often the purchases were large enough that they needed to be capitalized. Unfortunately much of what he bought turned out to be useless and ended up sitting around the building like an over-grown paperweight. He may have still thought these purchases were a good idea, but they certainly weren’t producing a decent return. In fact, they were producing no return whatsoever and were nothing more than a waste of financial resources. So, what should you expect out of your fixed assets? Read the rest of this entry »

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Two Measures of Financial Return

Recently I’ve been focusing on financial ratios and how they can help you measure performance. You’ve probably heard the old advice on a personal level, “If you’re not using something, maybe you need to get rid of it.” Another way to look at this is whether the benefits you derive outweigh the cost of ownership or produce a positive result. An example would be Read the rest of this entry »

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Inventory Days on Hand Analysis

In two articles around three years ago called 3 Low Cost Sources of Cash – Part 1 and Small Inventory – Big Benefits I discussed some of the benefits of keeping inventory to a level that would meet needs but would not be excessive. Let’s now look at a way to analyze inventory called inventory days on hand.

The Formula

The calculation for inventory days on hand is straight forward and is as follows:

(Inventory Balance / COGS) * 365 where COGS stands for Cost of Goods Sold. Let’s use the same numbers used in the first article mentioned above. If the inventory on hand is $1,000,000 and the annual cost of goods sold is $3,000,000 then the inventory days on hand is calculated as follows: Read the rest of this entry »

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Importance of Liquidity

In my last three posting, Necessity of Working Capital, The Current Ratio Matters and Quick Ratio Analysis we looked at three ways to asses a company’s liquidity. While working capital, the current ratio, and the quick ratio are useful liquidity measures, they may need some refinement. Let’s dig a little deeper and try to understand more about the importance of liquidity and why just the basic calculation of any of these may not be as helpful as we may have first thought. Read the rest of this entry »

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The Danger of Seasonality

Having just recently ended the Christmas season and the madness this creates in retail serves as a reminder of how difficult it is to be profitable. This difficulty is even greater when a business has high seasonality. Read the rest of this entry »

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Balance Sheet | A Different Look

When you look at a family photo there is something interesting that happens. While at first you may look at the group as a whole, if you look long enough you will invariably begin to think about specific individuals in the picture. You may think about the unique traits they have they you really like or even those traits that can drive you nuts. Do you sometimes find yourself thinking how much someone adds to your family? Perhaps you are even reminded of the challenges someone presents. So, what does this have to do with a company’s balance sheet?

The Balance Sheet in Total

At first glance a balance sheet may look like just a bunch of numbers, but we know Read the rest of this entry »

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3 Reasons to Know Basic Accounting

You don’t have to like accounting, but you should know basic accounting to operate a profitable business. Before you fight this too hard, consider three reasons.

Where Have I Been?

Let me ask you a few questions. Have you ever driven somewhere and when you got there suddenly realized you have little recollection of the trip? It happens to all of us at some point as we get lost in thought. Another variation that happens is for a driver to suddenly realize they have been driving on auto-pilot, look around and realize they are not sure where they are. Scary, isn’t it? No wonder we have so many wrecks. But in the business world something similar happens.

In a sense accounting serves as both a Read the rest of this entry »

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