The purpose of this blog is to keep the idea fresh, in the minds of decision makers, to steadily keep an eye on the financial side of their businesses.
The following two categories need to be comprehended in order to fully understand every business:
(1) Operations and (2) Financial.
These are separate and distinct concepts.
Companies do a much better job of understanding the operations side of businesses than they do the financial side. This is partly due to financial fundamentals not being logically defined. Since the financial fundamentals are not clearly defined, they cannot be effectively articulated to business decision makers.
For illustrative purposes, imaginary “umbrellas” are used in this blog, to list under them, the items of each of these two separate and distinct categories.
(1) Operations “umbrella”
This category includes operating fundamentals of sales, customers, production, competition, markets, personnel, etc.
They fit under the imaginary “operations umbrella”.
Generally, businesses do a very good job of comprehending their operations. This is understandable because the operations are the business. They are the reasons founders and successors created and grow their companies. It is what excites and drives them.
Decision makers can have a false sense of financial-comprehension security because they have a strong grasp of their business’ operations. This can lead to being vulnerable to financial surprises that are not driven by operations.
It needs to be realized that operations, including the P&L, are not the entire “business story”. In addition to operations, the financial story needs to be grasped to round out or complete the full “business story”.
Irony
Even though many components of each category are intertwined, it is ironic that decision makers can fully understand one of the categories and not completely understand the other….ie, the operations side of a business can be comprehended without fully understanding its financial side…and vice versa…the financial side of a business can be comprehended without the operations side being completely understood.
(2) Financial “umbrella”
To understand the financial side of businesses, financial fundamentals need to be comprehended.
The financial fundamentals fit under the imaginary “financial umbrella”.
It is unfortunate that financial fundamentals have historically been poorly defined, articulated, conveyed, etc.
Financial fundamentals are now easily accessible.
The PattonTrender® conveys the 5 Elements® of financial fundamentals to business decision makers. They were developed to solve the problem of confusion and lack of clarity of business’ financial fundamentals.
The Trenders are easily updated each month with existing internally generated balance sheets and P&Ls. In other words, companies do not have to do anything new or different. The 5 Elements of financial fundamentals provided by the Trenders are as follows:
Operating earnings
Cash flow
Financial health (re, liquidity)
Shareholder values
Borrowing capacity
The Trenders provide financial fundamentals in a succinct manner. Trends and drivers are shown. They simplify and de-mystify business’ financial fundamentals.
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