This is part 3 in a mini-series on working capital (check out part 1 here and part 2 here). Let’s recap the basics so far: With the basics covered, how do you spot warning signs in working capital? Let’s pull some real data from a real company here… what you’re seeing below is 22 quarters (5.5 years) of data highlighting days inventory…
Ever feel like your business is profitable, but you’re still struggling to pay bills and cover day-to-day expenses? Today we’ll build on the Working Capital 101 concepts we covered last week and drill deeper into the differences between profit and cash flow. Remember: Profit does not equal cash flow Here’s a basic formula/visual walking from revenue down to profit…
We’ve covered working capital a few times in the past… But today we’re covering probably the all-time most useful ratio when it comes to managing working capital… the Cash Conversion Cycle (CCC). What is it? Your CCC measures how long (measured in days) it takes a dollar of cash to move through your business, from start…
In any business (that’s any industry, any size, any product), there are generally only 3 ways to use profits: Most finance pros refer to this mix of profit usage as capital allocation. What does capital allocation actually mean? Capital is just a fancy word for money, and it can come from a few sources, but mostly cash generation…
Sources & uses of cash This is Part 2 of a series on capital allocation. A quick recap from last week: We defined the 3 uses of profits as capital allocation. They are: Where we left off was how to assess capital allocation… let’s cover one of the best methods for evaluating capital allocation, a tool we refer to…
We’re wrapping up a 3-part series (here’s part I and part II) on capital allocation – the effective use of profits and cash flow – with a concept called Return on Invested Capital (ROIC). [Sometimes just called return on capital or ROC.] First, a quick reminder of our balance sheet – we buy or build assets for the purpose…
You’re probably sick of hearing about working capital. Every business has working capital and next to cash, working capital is the lifeblood of every business. (If you think you don’t have working capital in your business, please send me a note, I want to hear about it!). First, what is working capital? Here’s a Net Working Capital…