Today’s newsletter covers one of the greatest tools in all of finance, the rolling 12-month analysis. A rolling what? We’re simply looking at 12-months of financial information in every column of a financial report. This can be an incredibly helpful tool. Imagine having a year’s worth of financial data – every month. Before we look at…
Last week, we kicked off a multi-post series working through a case study, Starbucks Corp. to be precise. We covered the business model, profit model, and unit economics and today we’re moving onto financial statement analysis. The goal for today is to show you how to pick apart a set of financial statements with ease. Quick…
We’re big fans (and users) of Gino Wickman’s EOS (Entrepreneurial Operating System), which outlines a useful framework for business management. I’d highly recommend if you’re in need of a basic structure for meetings, people management, and setting a company vision. What it lacks is a robust financial management structure, or what I’ll refer to as a Financial Operating…
When it comes to managing a business, there are typically 2 schools of thought with staunch defenders on each side: (The latter is sometimes referred to as micromanagement.) In his recent article Founder Mode, Paul Graham (founder of startup incubator, Y Combinator) compares the hands-on management approach (Founder Mode) with the traditional delegation approach (Manager Mode)….
“Send me your financials.” What I receive in response to this question is typically a mixed-bag. Maybe there’s a different answer depending on the recipient, but I’ll share my 5 favorite financial reports. These are the ones I’d want to see in order to really help someone. The 5 best financial reports (in order): The point is to look…
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…
Taking the quarterly view It’s not too late to review 2024 annual financial statements. In fact, most public companies are still reporting Q4 and full year results. Like other business owners, I have a strong preference for monthly financial statements; but, with yearend in full swing, it felt like a good time to pitch the quarterly…
What’s your financial cadence? Business owners have a typical financial review process that goes something like this: Financial statement analysis is the primary tool when it comes to evaluating business performance (I’ve said this before). There’s a “what” component and a “when” component to that analysis; here’s a simple routine that should work for most…
1) The indirect method of cash reporting The indirect method of reporting cash flow is what you’ll see most often. It’s the standard format across QuickBooks, other financial software, and for publicly-traded companies. How it works There are 3 sections of cash flow With all the components laid out, it’s easy to see why profit is so…