Financially, How Much Is Enough?

Financially, you want your company to have high profit, return on capital and cash flow but what is the minimum level of those things for financial sustainability? How much is enough?

The answer is that you want at least that level of profit, return on capital and cash flow IN FUTURE to continue to attract the capital your business needs. It’s not what’s happened in the past that’s important; it’s what’s going to happen in future.

Lenders want to be comfortable that the company can pay the interest and, in time, the loan without difficulty. Shareholders want a return on their equity (dividends plus share price appreciation) sufficient for them to hold or buy shares, given the risk they’re taking and other investment opportunities they have. Both groups of investors look to the future.

The published Financial Statements show past performance and they’re important as they show the starting point but so are forecast Financial Statements which are usually only available internally. Ensure they’re reasonable and use them to manage the company to achieve at least the profit, return on capital and cash flow that investors require.

That’s how much is enough and more than that is a bonus (yours perhaps)!


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