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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
A Manager's Guide to Knowing What the Numbers Really Mean
One day, an executive at a Fortune 100 company received a request from a client who had a credit line of $100 million. Could the company send the client the funds? For a big corporation, this was a pretty standard request. But when the executive talked to the treasury, she was shocked by what she discovered. They didn’t have the funds. The company had run out of cash!
This story goes to show that even big companies make basic mistakes. And it’s a surprisingly common issue – so many managers fail to pay attention to cash.
People who are financially intelligent understand just how important cash is. Take Warren Buffett, for instance – perhaps the most successful investor of all time. When Buffett looks at financial statements, he pays close attention to cash flow and owner earnings. That’s a valuation of how much cash a company can generate over time.
Remember, companies need cash to stay alive. Profit is all very well and good, but you can’t use it to pay for computers and other supplies. In order to pay for things, you need cash – real money.
So, if you want to be financially intelligent, you should keep an eye on cash flow. Think of cash as a reality check – an insight into how the company’s really doing right now.
Also, if you understand cash, you’ll find it easier to make good business decisions. For instance, let’s say your company is profitable but lacks cash. In that case, you need financial expertise.
But if it’s the other way round – the company has cash but isn’t making a profit – you should focus on operational expertise instead. Look for someone who can assist you in reducing costs or generating more revenue.
That’s just one example. Understanding cash can help you with all kinds of things, leading to improved financial results. So be like Buffett, and scrutinize your next statement.
Financial Intelligence (2013) is an accessible handbook that helps managers and decision makers interpret financial data and understand its importance.
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Try Blinkist to get the key ideas from 7,000+ bestselling nonfiction titles and podcasts. Listen or read in just 15 minutes.
Start your free trialBlink 3 of 8 - The 5 AM Club
by Robin Sharma