Is Your Business Making Money? (Simplify this Key Financial Concept)
- Ed Patton
- Jul 8
- 2 min read
Updated: 6 days ago
Foundation Cash Flow™ (FCF) is a single dollar amount which provides a unique and effective measure of whether a company is "making money" and, if so, how much.
This straightforward simplicity can prevent business leaders from being immersed in “financial weeds" and inundated with “financial and cash flow TMI”.
This may sound elementary, but many businesses do not understand whether they are making money, breaking even, or losing money.
Below is a list of at least eight different measurements of cash flow:
1. Cash flow from operations (CFO)
2. Cash flow from investing (CFI)
3. Cash flow from financing (CFF)
4. Free cash flow (traditional FCF)
5. Free cash flow to the firm (FCFF)
6. Free cash flow to equity (FCFE)
7. Owner’s discretionary cash flow
8. Net cash flow (change in cash)
With so many different calculations it is easy to see why many SMB executives do not understand their company’s cash flow.
Without understanding cash flow, many of these SMB executives are flying financially blind.
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FCF is the reporting periods’ change in working capital.
This change in working capital is calculated as the net changes in: Equity plus Non-Current Liabilities minus Non-Current Assets.
This is counterintuitive as this calculation, of the changes in working capital, is the change in the non-current balance sheet items (or Foundation Capital™).
The drivers and trends of FCF provide valuable financial insights (not discussed here but is an important subject by itself).
FCF reflects the core economic / business activities of a company because it is the change in the non-current sections of the balance sheet which is where a company's core economic / business activities are recorded.
Another financial insights feature of FCF is that it is the primary driver of a company’s financial health
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FCF is a core component of the Trender® cash flow statement, which is an effective, commonsense, alternative to the GAAP cash flow statement.
A strong understanding of cash flow enhances management’s comprehension of their business.
A grasp of whether a company is making or losing money, and how much, is management's gateway to understanding their business's full financial profile.
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FCF is one of the 5 Elements® of Financial Fundamentals developed by the Trender Platform.
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Reach out for an introductory phone or video call to discuss how succinct and understandable financial fundamentals, including FCF, have helped the leaders of many privately owned businesses.
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Edward B. Patton
5701 Broadway, Suite 102
San Antonio, Texas 78209
Phone (210) 822-9977
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