Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 46

Old Pueblo Lithographers, the largest lithographer in New Mexico and headquartered in Santa Fe, is a family firm that dates back to the 1950s. The company specializes in high-quality, fine art, book, and commercial printing for customers in New Mexico and the southwestern United States, with some commercial customers in Mexico. The firm is managed by James Logan, a third-generation printer who is approaching retirement. The issue at the firm is what to do about choosing the next leader of the company.

James has one child, a daughter, Sydney, who works in the business. By all accounts she is very good at her job. She is excellent with clients, is well respected by her peers, and knows the production process inside and out. She had a meeting with her father and has asked him to consider appointing her the new president of the corporation. James turned her down. She took offense at what she perceived as a slight; hurt and dejected, she stalked out of her father's office, slamming the door.

Later when she had calmed down, she approached her father and asked why he had turned her down in her bid to lead the company. His answer was simple and direct: “You cannot read financial statements.” He went on to say, “Without this ability, you will not be able to manage the company well enough to keep it on track with the requirements of its banks, nor will you be able to assure that the customers would pay their bills appropriately and that the company would pay its bills in the most efficient manner. You would not have any idea about how to give credit terms or take advantage of terms offered by the firm's suppliers. You would not know what the impact of production scheduling changes or capital purchases would have on the firm and would thus not know the impact of any decisions you made in these areas. In short, if you can't read the financial statements, you won't know how to manage the firm's cash flow and, ultimately, you would not be able to keep the company on an even financial keel.”

Sydney wanted to know how she could learn to “read financial statements.” Her father suggested two things: (1) learn about the firm's financial statements and (2) understand ratio analysis.

Chapter 3 indicated the role that financial statements play in providing relevant and timely information about the overall health of the company to entrepreneurs, investors, and other stakeholders. Financial statements provide a wealth of information that can be used to assess the risk of the firm, evaluate management's efficiency, and determine future needs of capital. However, it is sometimes difficult to interpret all this information without first putting it into context. For example, suppose a firm has total assets of $1,250,000 on the balance sheet. Is this good, bad, or neither? Is the firm going in the right or wrong direction? Based on this number alone, it's hard to tell. By looking at the financial statement in isolation, it can be difficult to get a clear picture of how the firm's performance is progressing over time and how the firm compares to its peers. Financial ratio analysis helps make sense of this problem by providing a method for making better use of the information in the financial statement. It is an extremely useful management tool that improves the understanding of financial results and trends over time and provides key indicators of organizational performance. In this chapter, we will look at how we can use financial ratios to perform a complete and efficient analysis of the firm. Chart 4.1 presents a schematic representation of the material covered in this chapter.

Chart 4.1 Schematic of Chapter 4