What Do Your Company Financials Tell You?
by Hal Levenson on Aug 4, 2020 3:45 PM
Let’s look at how to understand your company financials to better drive growth. There’s been a lot of discussion recently with business owners who are trying to make sense of their financials over the last few months so they can better plan for 2021. I recently spoke with a client about the ‘stuff’ hidden between the lines of his company’s financials. Sometimes the way things look on the outside or on the surface just aren’t what they really are underneath. This is true with your financials especially when delving into the balance sheet.
I still contend that the balance sheet is one of the most misunderstood and underused tools in business. Hidden gems can be easily revealed by reviewing it.
Here’s a great example. What company would you rather have?
Company A with annual revenues of $5,000,000; annual cash compensation for the owner of $400,000 and an annual net profit of $750,000
Company B with annual revenue of $10,000,000; annual cash compensation for the owner of $400,000 and an annual net profit of $750,000?
Your initial choice may be Company B as the revenue is greater. But what if we added this one detail from the balance sheet:
Company A has $1,125,000 in Total Assets
Company B has $3,725,000 in Total Assets
Higher Return on Assets: Company A gets $750,000 in profits on $1,125,000 of Total Assets for a 66% return on assets. Company B gets the same $750,000 in profits on $3,725,000 of Total Assets or 20% return on the assets in the company. Company A is getting a better bang for its buck because it takes less to generate the same amount of profit.
The bottom line is that you need to look past the surface of basic financials to reveal the whole story.
At Trilogy Partners, we educate our clients to not only review but also delve into all the components of their financials. If you’re curious about the story behind your numbers, learn more here: https://gettrilogypartners.com/financial/
About Hal Levenson
Hal Levenson is the Founder and Chief Visionary Officer at Trilogy Partners. Trilogy Partners is an advisory & implementation firm whose mission is to help companies grow and transform. We accomplish this by focusing on 3 critical business areas: Financial, Strategy & People.