Sunday, September 18, 2011

Awaken to the Realities of your Balance Sheet

Earlier I wrote about Importance of Profit Vis a Vis Cash-flow. Yes Cash-flow is necessary but not sufficient. However Cash-flow is infact NECESSARY. 

I recently came in touch with a company with an EPS of Rs.100 plus. Yes they have earned huge profit on their equity but they have defaulted on loan repayment consistently for last 6 months. 

Reason: Profit Earned but not en-cashed. Investors usually goes by EPS and PE etc ratios for deciding about investments. How erroneous it cud be???
On the other side entrepreneurs mostly do not feel the realities of the business performance as long as cash flow is flowing in. Test Check - Just remove potential bad debts , dead stock & dead investments from the Net-worth and see the result. Is the Net-worth is  still positive , thank GOD. I mean it. Most entrepreneurs ignore these facts or even do not know this realities as long as they have cash to take care of their own needs. 

Therefore Profit & Cash-flow both MUST go hand in hand and must be closely watched by the entrepreneurs to remain in business for longer. Any one missing or ignored will KILL the business sooner than expected. 


Weak Cashflow will KILL quicker , weak Profit in the long run. 

Awaken to the realities of your Balance Sheet { Today }.

6 comments:

  1. Stefan D. Founding and Managing Partner at Shift Group,Greater New York City Area.
    (Posted on LinkedIN)

    Sunil, thanks for this assessment.

    Yes, both cash flow and P&L are crucial to give an entrepreneur a better understanding where they are with their business.

    I agree that positive cash flow is kind of misleading if you're not profitable.

    Please keep posting!

    ReplyDelete
  2. Posted on Linkedin: Banking Professional
    Vadodara Area, India

    i shall be obliged if some more such important matter which r most important to see/scrutinise in bal-sheet is sent to me om my e-maii-kkishoreshah911@gmail.com

    ReplyDelete
  3. Posted on Linkedin - Vineet Rastogi ,www.globalbarters.in
    Mumbai Area, India.

    Nice blog ! Analysts and accountants also miss the spare capacities of businesses so much so, that even the traditional balance sheets do not even capture them anywhere appropriately. These spare capacities in-fact are your current assets, your purchasing power. You can actually exchange it for goods and services. We facilitate!

    ReplyDelete
  4. Stefan D. Founding and Managing Partner at Shift Group,Greater New York City Area.
    (Posted on LinkedIN)

    Sunil, thanks for this assessment.

    Yes, both cash flow and P&L are crucial to give an entrepreneur a better understanding where they are with their business.

    I agree that positive cash flow is kind of misleading if you're not profitable.

    Please keep posting!

    ReplyDelete