Posts Tagged ‘balance sheet management’

Learn to Love Financial Data

What would you think if you heard someone say that company management should learn to love financial data? You might think they had lost their mind. Have they?

Attention Getter

Actually I used that question to get your attention. No, I don’t really expect the management of any company to get to love financial data. On the other hand, I do think Read the rest of this entry »


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 »


Validate Your Information

How often do you hear someone tell you something that seems incredible, only to learn later it’s not true? This occurs in both personal and business situations. Of course this makes sense as, whether we like it or not, personal and business get mingled together.

If it Sounds Too Good to be True

We’ve all heard the saying, “If it sounds too good to be true, it probably isn’t.” Of course this is a warning not to believe everything we hear. However, sometimes we are surprised that something actually Read the rest of this entry »


A Financial Reckoning

Are your business finances in good shape or are you headed for a financial reckoning? As I observe the financial picture of our economy and in particular our government, I cannot help but wonder how long this way of operating can continue. Read the rest of this entry »


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 »


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 »


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 »


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 »


Some Key Financial Indicators

If you are attempting to manage a business you must have timely and meaningful financial indicators. Many companies do this with some sort of financial dashboard, but whatever your method, here are a few things to be on top of.

Some Balance Sheet Data

Keep up with some key balance sheet data. This should be done at a minimum monthly, but preferably weekly or even daily, depending on the particular piece of information. Here are some of the key financial indicators to track: Read the rest of this entry »


Balanced Approach to Financial Management

I remember a partner in a small CPA firm telling a story from early in his career. He said he had been given the task of creating a balance sheet for a client. When it was in balance he declared, “It balances, so it must be correct.” Of course the balance sheet must balance, but he quickly learned there was a lot more to it than that.

Balance Does Matter

One of the first areas where a company often displays a lack of balance is on the importance of the different financial statements. The income statement shows the results of activities over a specific period of time, while the Read the rest of this entry »


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