Measure the Money You’re Making

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To understand your company’s financials, knowing these three measures of if and how money is coming in is a good place to start:

  • Growth. Growth in sales is usually — but not always — a positive sign. Look for year over year growth but remember that it has to be profitable and sustainable.
  • Cash generation. Cash allows companies to stay in business. Cash generation is the difference between all the cash that flows into the business and all the cash that flows out. Investigate where the cash is generated, how it’s used, and whether enough is coming in.
  • Return on assets. A company’s return on assets is its net profit divided by the average value of its assets during a given period of time. This measure shows you how well your company is using its assets to make money.

Adapted from Guide to Finance Basics for Managers.

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