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 b...

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: Buy more assets (with the intention of growing sales) Pay off debt and other liabilities Pay dividends to owners Where ...

In any business (that's any industry, any size, any product), there are generally only 3 ways to use profits: Buy more assets (with the intention of growing sales) Pay off debt and other liabilities Pay dividends to owners Most finance pros refer to this mix of profit usage as capital all...

Use visuals to spot trends and patterns There are only 3 ways to convey information: Words Pictures Numbers If we rank them from easiest-to-hardest-to-understand, then it probably goes: 1) pictures, 2) words, 3) numbers. So why are we exclusively using numbers to understand our financial...

I'm tired of seeing crummy articles about building a budget, forecast, model, etc. so I decided to create this incredibly simple yet practical guide to budgeting. [In case you didn't pick it up, I use the terms budget, forecast, and model interchangeably.] What are the steps? You likely already...

We've covered working capital a few times in the past... 101 – What is working capital​ 201 – Working capital drivers​ 301 – Optimizing & analyzing working capital​ But today we're covering probably the all-time most useful ratio when it comes to managing working capital... the Cash Conve...

Installing a Financial Operating System 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 compa...

Let's study turnarounds You might see this title and scratch your head, wondering why you'd want to read about turnarounds or business failures. It turns out there are incredibly valuable nuggets of wisdom in these stories. The foundation of any successfully run business is a strategy everyo...

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 Operating cash = profit ...

Let's talk metrics One challenge in managing finances is the overwhelming amount of numbers and metrics available to look at. Scoreboards in professional sports generally display only the most relevant stats, and your business should do the same. How do we handle it? Stick to 6-7 key metrics ...