the kings role
DESCRIPTION
How the King manages the Balance sheet considering the various decisions that the King has to make and when those decisions are required to be madeTRANSCRIPT
The Kings role The power of the King in creating of destroying wealth
in Financial statements
Our Characters
Revenue is Vanity
Profit is Sanity
Cash is King
The 3 Characters to the financial statements
How each character influences decisions directly impacts the performance of the financial statements
Today we will focus on the King, determine how the King should manage the way we transform making money into creating wealth within our financial statements
The roles
Revenue is Vanity
Profit is Sanity
Primary responsible for the performance of the income
statement or what we call the money making machine
The King
Primary responsible for the performance of the balance sheet
or what we call the wealth creation engine
The Kings domain
How the King views the wealth creation engine
Must be the same value at all
times
Cash on hand
Accounts receivables + Inventories – accounts payable – other non interest bearing debt +other assets
All interest bearing debt both short term and long term including lease capitalized debt
All equity including share capital, retained income and other equity instruments
The King provides resources to make more money
The additional resources are funded with debt and equity
Vanity and Sanity want to make more money through automation
To increase profitability Vanity requires a new automated distribution system cost 100,000
Non cash resources increase by 100,000
The Kings decision
Funding can either come from existing cash resources or from additional equity or from additional debt
The Kings decision – existing cash resources
+100,000
-100,000 The value of the
investment component
stays the same
The Kings decision - does not want to use existing cash resources
+100,000
Equity can come from the additional profit derived from the automated system but that will only happen over time so the King has to use other peoples money
+100,000
The Kings decision - the consequence
+100,000 Using other people money has the potential of
increasing risk
The Kings decision - the consequence
+100,000To mitigate risk the King has
to ensure that he makes money from other peoples
money
Decisions ……decisions
+100,000
-100,000 Risk
Use cash resources …wealth is created with rapid cash
replenishment
None required
Decisions ……decisions
+100,000
+50,000-50,000
Or a combination of both…wealth is created by minimizing risk
Decisions ……decisions
+100,000
+100,000
RiskRisk
Use other peoples money…create wealth by making more money than the cost of other peoples money
Coming soon
Start the conversation“how do you improve profit,
cash and returns for my business”
Presented By Global Financial Bridgewww.gfbridge.com
Mick [email protected] Gien [email protected]