Page 103 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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For that reason we suggested in Chapter 4 that you resist
voting for the income statement as the most important single
financial report until you hear from the unheralded, often
unseen, and frequently unread, but resoundingly relevant state-
ment of cash flow.
Most everyone has heard that cute phrase: “Cash is king!”
Yet for many business professionals, that most often means
making sure there’s money in the bank or in the cash register or
in their pockets. However, if there’s one thing that consulting
professionals, lenders, and turnaround experts all agree on, it’s
that the cash a company has on hand is a trailing indicator of
its financial condition. In other words, by the time the status of a
company’s liquidity is reflected in the bank account, the cause
of the problem is already history and there’s not much man-
agers can do about it. They will often focus on the symptom,
fixing the cash shortage, instead of finding and fixing the origi-
nal cause of the problem—product pricing, operating efficiency,
credit granting policy, or a host of other possible causes.
So, the trick for every manager is to be regularly aware of
where the cash is coming from and where it is going, both for
historical evaluation and for future planning purposes. How best
to do that? Well, there are two choices: they can pore over their
cash journals and bank statements and prepare an exhaustive
analysis of their bank account transactions each month or they
can prepare an automated financial report that summarizes
those transactions and identifies the general causes of increases
and decreases. Hmmmm …. Which one should we choose?
Well, just for the heck of it, why don’t we go with the finan-
cial report? And just to make our job easier, why don’t we pick
one that actually shows us all the major reasons net profit didn’t
produce an identical amount of cash going into the bank? Huh?
There couldn’t be a single report that contains that much infor-
mation about something as critical as cash or it would be on the
desk of every manager who has any kind of financial responsi-
bility in his or her company, wouldn’t it?