Financial Intelligence for Entrepreneurs by Berman Karen; Knight Joe;

Author:Berman, Karen; Knight, Joe;
Language: eng
Format: epub
Publisher: Harvard Business Review Press
Published: 2011-06-22T16:00:00+00:00

The list goes on. Maybe your plant manager is always recommending buying more equipment, just in case the orders come in. Perhaps whoever runs your IT system feels that the company always needs the latest upgrades. You have to respond to such requests, and every one will affect cash flow.

Third, entrepreneurs who understand cash flow tend to make better decisions day in and day out than those who focus purely on the income statement. In the following part, for instance, you’ll learn to calculate ratios such as days sales outstanding, which is a key measure of a company’s efficiency in collecting receivables. The faster receivables are collected, the better your company’s cash position.

But our general point here is that cash flow is a key indicator of your company’s financial health, along with profitability and shareholders’ equity. It’s the final link in the triad, and you need all three to assess how you are doing. It’s also the final link in the first level of financial intelligence. You now have a good understanding of all three financial statements, so it’s time to move on to the next level—to put that information to work.

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