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Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers by Joe Knight, Karen Berman

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17

Why Cash Matters

Of course, by now you may be saying to yourself, “So what? All this is cumbersome to figure out, and do I really need it?”

For starters, let’s see what our sample company’s cash flow statement reveals (that is, the cash flow statement for the imaginary company whose financials appear in the previous chapter and in appendix A). In terms of operations, it is certainly doing a good job of generating cash. Operating cash flow is considerably higher than net income. Inventory declined, so it’s reasonable to suppose that the company is tightening up its operations. All this makes for a stronger cash position.

We can also see, however, that there is not a lot of new investment going on. Depreciation outweighed new investment, which ...

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