The Finance Gem 💎 Week #42 - Exclusive AFP2023 Content, EBITDA, Cash Flow, and Profitability

Welcome to a New Edition of The Finance Gem 💎

weekly strategic finance gems to accelerate your career and grow your business

Newsletter | Masterclass | Shop

• Exclusive AFP2023 Financial Analysis Content

• EBITDA vs. Cash Flow

• The Business Management Checklist

• The Profitability Cheat Sheet

• Strategic Cash Flow Quiz

• My viral cheat sheets, checklists and infographics are available in full resolution. Visit my web store and turn your favorites into posters! Or give them as gifts and become the coolest finance friend or mentor!

  

  Visit my digital shop

• I use Thinkific to power up The Cash Flow Masterclass and the several upcoming courses I am working on. Download the new Thinkific mobile app on your mobile device, and grow your strategic finance skills and insights from anywhere, anytime — on any device.

  

• For Upcoming Course Launches, Promotions, Private Sales and Free Finance Webinars, sign up here. Make sure you add [email protected] to your address book, or you might miss out because my emails to you may not get delivered.

This week I was privileged to be one of the speakers at the AFP2023, the largest finance conference in the world, where over 6,000 attendees came together in San Diego California to gain professional knowledge, build valuable connections and draw inspiration. I had the pleasure of finally meeting several friends in person, and greatly enjoyed connecting with every one of them: Ron Monteiro, CPA, CMA, Christian Wattig, Paul Barnhurst The FP&A Guy, Alina Traistaru, MBA, and of course, Wassia Kamon, CPA, CMA, MBA.

AFP2023 was an elevating experience, flawlessly executed and made possible through the vision and dedication of AFP’s incredible team: CEO Jim Kaitz, FP&A Practice Director Bryan Lapidus, Educational Programs Manager Marcia Solomon, and many others I didn’t have the opportunity to meet but each of who have my gratitude and admiration.

For my session titled Solving Business Problems with Financial Analysis, I had the opportunity to collaborate with Wassia Kamon, CPA, CMA, MBA. Together, we delved deep into the integration of strategy into financial analysis to pave the way for robust business decision-making.

Here are some highlights of the session below, to help immerse you into the content of that memorable day and the inspiration of this influential and trendsetting conference overall:

Financial Analysis answers critical business questions about profitability, liquidity, solvency, efficiency, cash flow, and growth.

Questions such as :

>> is the business growth sustainable?

>> is the business profitability sufficient?

>> does the business use assets efficiently?

>> can the business meet its current and long term payment obligations?

>> does the business produce sufficient operating cash flow for its needs?

The answers to those questions are grounded in the strategic environment in which every company operates:

The political, economic or technological factors impacting the organization all of which we can understand using the PESTLE framework.

The competitive pressures impacting the organization which we can understand using Porter’s 5 Forces.

The company’s strengths, weaknesses, opportunities, and threats, which we can understand with the help of the SWOT framework.

Depending on the lifecycle phase the business is in, financial analysis will answer different questions

Startup Phase: typically answers questions about the business viability

Growth Phase: typically answers questions about business scalability

Maturity Phase: typically answers questions about maintaining profitability

Decline Phase: typically answers questions about restoring business viability

Stay tuned for the upcoming announcement of the launch of my Financial Analysis Masterclass, and make sure you don’t miss out on the pre-sale! Coming Soon!

The EBITDA vs. Cash Flow Cheat Sheet.

Because EBITDA is Not Cash Flow.

And Cash Flow isn’t EBITDA.

Not Operating Cash Flow.

Not Financing Cash Flow.

Not Investing Cash Flow.

And not Free Cash Flow.

….

🎯 EBITDA focuses on operating profitability without considering the impact of:

➡️ capital structure (how it choses to finance its operations)

➡️ tax circumstances (tax benefits from operating in a certain jurisdiction)

➡️ non cash expenditures (depreciation and amortization being the most significant).

➡️ EBITDA speaks to profitability but a company with positive EBITDA can still be insolvent.

🎯 Cash Flow focuses on the actual movement of the cash in and out of a business:

➡️ most commonly referenced is the "Free Cash Flow" (FCF), which represents cash available after all working and fixed capital expenditures have been funded

➡️ other formulas calculate "Free Cash Flow to the Firm" (FCFF) and "Free Cash Flow to Equity" (FCFE)

➡️ Cash Flow speaks to liquidity but positive cash flow doesn't equate to profitability

The Business Management Checklist

15 Essential Topics you Need to have under Control.

Because Good Management is Good Business.

Here’s an invaluable Checklist covering 15 Essential Business Management areas to help you stay on track.

A 50,000 ft level view on business management:

1. Structure: how the Business is set up to operate

2. Policies and Procedures: how the Business operates legally and ethically

3. Accountability and Transparency: how the Business is transparent and accountable for its actions

4. Ethics and Integrity: how the Business is honest and trustworthy in its activities

5. Risk Management: how the Business is managing potential risks

6. Compliance: how the Business is complying with laws, regulations, and standards.

7. Stakeholder Rights: how the Business is ensures the rights of all stakeholders are respected and protected

8. Corporate Social Responsibility: how the Business is operating responsibly accounting for the interests of its stakeholders.

The Profitability Cheat Sheet.

Because Revenue needs to turn into Profits.

Profits need to turn into Cash Flow.

And Cash Flow is needed to fund growth.

Here’s what the Profitability Cheat Sheet includes:

1. Performance KPIs like revenue growth rate or customer lifetime value give you a snapshot of how well your business is capturing market opportunities.

2. Profitability KPIs like gross margin and net profit margin take the revenue numbers from the performance KPIs and assess how much is actually trickling down as profit.

3. Financial Performance Ratios ensure you're not taking on too much risk to achieve those profits.

4. Cash Flow Ratios indicate whether your profits are indeed converting into cash.

5. DuPont Analysis breaks down ROE into its components so you get a clearer picture of how efficiently your company is utilizing its equity to generate profits.

6. EBITDA vs. EVA helps in understanding if you are creating or destroying shareholder value.

7. Project Profitability Metrics (NPV, IRR, etc.) guide future investment and growth strategies.

If you’re enjoying this newsletter, please forward it to a friend. It only takes 3 seconds. Writing this took 4 hours.

🎯Refer 5 people and get my exclusive eBook 10 Essential Strategic Finance Concepts that link Accounting, Finance and Strategy

🎯Refer 10 people and get an exclusive $10 Off coupon for your favorite infographic in my digital store.

This week I’m starting something new, so get ready to test yourself by answering the five questions below. If you need help with any of these, you will enjoy learning about them in my highly reviewed, self-paced, on-demand video course.

1. If a company buys new manufacturing equipment with cash and later finances its operations by issuing new shares, how does this dual-action impact the net cash flow for the period?

a) Increases Cash Flow in both Operating and Financing Activities
b) Increases Cash Flow in Financing Activity, Decreases Cash Flow in Investing Activity
c) Increases Cash Flow in Investing Activity, Decreases Cash Flow in Financing Activity
d) Increases Cash Flows in both Operating and Investing Activities

2. Your company pays off its corporate credit card bill and receives a tax refund in the same period. Which statement best describes the net effect on operating activities cash flow?

a) Net Zero Cash Flow
b) Net Cash Inflow
c) Net Cash Outflow
d) Inconclusive without the amounts of the transactions

3. When a company secures a new client contract expected to significantly boost future sales, but sells off some investments in stocks and bonds to fund initial client project costs, what strategic considerations should be made in cash flow projections?

a) Future Operating Cash Inflows and Current Investing Inflows
b) Future Operating Cash Inflows and Current Investing Outflows
c) Future Investing Cash Inflows and Current Investing Outflows
d) Future Operating Cash Outflows and Current Investing Inflows

4. If a company sells an old piece of equipment for cash and also invests surplus cash in a term deposit, what long-term strategic implications should be considered for optimizing cash flows?

a) The Timing of Cash Inflows and Cash Positioning
b) The Timing of Cash Outflows and Liability Management
c) Tax Implications and Cost of Capital
d) Operational Efficiency and Debt Management

5. When a company decides to pay dividends without sufficient operating cash flow, what becomes the primary risk concerning its cash flow?

a) Reduced Ability to Invest in Future Opportunities
b) Jeopardizing Free Cash Flow
c) Undermining Debt Servicing Capabilities
d) Increased Tax Liabilities

As always, if you have suggestions or feedback, simply reply to this email.

1. Upgrade your strategic finance skills with The Cash Flow Masterclass, my highly reviewed, on-demand video course.

2. Work with me 1-1. Tap into my 20+ years of strategic finance & business intelligence, and get coaching for your own career. Availability is very limited. Book here.

3. Get growth business advisory for your organization with short, medium and long term financial planning, and big-picture financial models so you’re always finance-ready. Reach out here.

4. Sponsor a future issue of The Finance Gem 💎 

5. Train your team on strategic finance concepts and elevate their knowledge, decision-making and productivity. Reach out here.

Thanks so much for reading. See you next week.

Oana

: