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Its The Relationships

Jan 06, 2009

While there is some value to be gained from simply looking over the Balance Sheet, Income Statement and Cash Flow Statements, it is only by looking at the relationships among the various data elements that true insight into the health of the business can be gained.  For example, the relationship of the Balance Sheet current assets to current liabilities – referred to as the “Current Ratio” - provides an indication of the company’s ability to pay it’s short term obligations.  The relationship of Income Statement Cost of Goods Sold or Manufactured to Total Revenues – COGS divided by Total Revenues – indicates the extent to which revenues are consumed by the cost of the product that is sold.  Revising the presentation of the data slightly – Total Revenues less COGS – tells the owner the monies available to pay selling and administrative expenses and provide for a profit from operations.  B2B CFO Partners are skilled at helping business owners identify key metrics that are useful in monitoring the financial wellbeing of their company.

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About the Author

Steven D. Olson, CPA, has extensive experience in a wide range of leadership, management and advisory positions. In the role of Chief Financial Officer, he provides executives with timely and accurate financial statements, ongoing cash flow projections, oversight over accounting and finance operations, as well as design and maintenance of the financial reporting structures.

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