The counter-intuitive expression “the reward for hard work is more work” hit me as it echoed through the walls with the voices of the MEMBA 12 cohort. Though this is not my first encounter, my thoughts strangely related this to another strong concept in Corporate Financial Accounting (CFA) “Cash is King”. The intriguing relationship between the two was based on the fact that these fundamental truths hold true in the long run albeit undermined by instant gratification being center stage. Greater success, proficiency, and long-term growth of an individual and or business entity are catalysts for creativity and innovation which are achieved through consistency and mastery of expertise.
The psychology behind instant gratification, despite the immediate pleasures, has considerable consequences on long-term growth, especially with a short-term focus or constrained outlook to growth without the willingness to put in the hard work towards proficiency and consistency. This is likened to a business owner running a business solely on profitability metrics without considering other key ratios like liquidity, efficiency, and solvency ratios which provide a more vivid picture about the financial health and long-term viability of a company.
Profitability is not cash. A business could be profitable on paper, however may not have adequate cash to cover its expenses and or short-term obligations. Although profitability contributes towards positive cash flow, a successful financial strategy needs to combine both profitability and cash flow management. The art and science of understanding these ratios and projecting their applicability into circumstances or into the future is no mean feat.
Profitability Ratios: They provide valuable insights into the ability of the company to earn a return on investment
Liquidity and Solvency Ratios: They help to understand the ability of the entity to meet its short-term and long-term obligations with cash and or cash equivalents. It also highlights the benefits and disadvantages of the use of leverage as a multiplier effect at different points in time
Efficiency Ratios: Measure the effectiveness of the use of available resources or identify the need to maximize opportunities
The pivotal role of this complex process of churning numbers and analyzing is an ongoing commitment that requires rigorous attention to detail, dedication, expertise, and hard work which ensures the prosperity and longevity of the entity. Perfection is a journey that never ends, only hard work and more work could play a crucial factor in determining that cash management – liquidity management is an essential complement to ensuring financial success and stability. The ultimate goal of initial income generation is for it to be sustainable and to achieve financial freedom. Self-awareness and self-regulation also acts as a catalyst for improved performance either in an individual or business context emphasizing that diligent effort is a common factor that contributes to financial success.
#MEMBA 12
