Managing finances and understanding key financial metrics are essential for business success. Effective financial management allows businesses to plan strategically, borrow money easily, provide information to investors, improve profitability and efficiency, and make better decisions. Calculating and analyzing financial ratios related to liquidity, debt, inventory, profitability, and asset use helps businesses understand their financial position and identify areas for improvement. Maintaining proper working capital levels and avoiding overtrading are also important aspects of capital management.

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Managing By
Numbers

2. Managing By Numbers – use financial data and ratios to determine the most
appropriate strategic direction for your organization. Effective Financial
Management help organizations plot their way through an environment
filled with opportunities and dangers.
FINANCIAL MANAGEMENT – KEY TO SUCCESS

3. FINANCIAL MANAGEMENT IS THE ENGINE
• Manage proactively rather than reactively.
• Borrow money more easily; not only can you plan ahead for financing
needs, but sharing your budget with your banker will help in the loan
approval process.
• Provide financial planning information for investors.
• Make your operation more profitable and efficient.
• Access a great decision-making tool for key financial considerations.
With a good financial management system, you will know not only how your
business is doing financially, but why.
And you will be able to use it to make decisions to improve the operation of
your business. A good financial management system helps you become a
better macromanager by enabling you to:

4. EFFECTIVE FINANCIAL PLANNING ALLOWS YOU TO
• Avoid investing too much money in fixed assets
• Maintain short-term working capital needs to support accounts
receivable and inventory more efficiently
• Set sales goals; you need to be growth-oriented, not just an
"order taker”
• Improve gross profit margin by pricing your services more
effectively or by reducing supplier prices, direct labor, etc., that
affect cost of goods sold
• Operate your business more efficiently by keeping selling and
general and administrative expenses down more effectively
• Perform tax planning
• Perform sensitivity analysis with the different financial variables
involved.

5. MANAGING BY NUMBERS – SIMPLE TIPS
• Have a plan. Make budgeting & financial planning integral
• Know your financial position
• Cash is King
• Keep your books/records up-to-date
• Manage receivables aggressively and chase debts
• Look for operational efficiencies – save more money
• Inventory Control
• Get the right kind of funding
• Spread your risk
• Anticipate changes & be prepared
• Stay nimble & flexible
• Don’t bury your head in the sand!

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FINANCIAL RATIOS
• Financial ratios help you get a better handle on your
operations, see when things are out of kilter, and set down
milestones for the future
– Do I have enough working capital? Do I have enough money for
salaries? Is my debt too high? Do I have too much inventory? Am I
using my assets wisely? How profitable is my business?
Corresponding to figures from your financial statements, ratios make
relationships in your business more understandable. A ratio is only a
shorthand note: It shows you what's going on according to your financial
accounts.

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KEY RATIOS FOR YOUR BUSINESS
• Quick/Acid Ratio = Cash and Near Cash ÷ Current Liabilities
Measures ability to meet current debt, a stringent test since it discounts the value
of inventories. The rule of thumb is 1-to-1. A lower ratio indicates illiquidity. A
higher ratio may imply unused funds.
• Current Ratio = Current Assets ÷ Current Liabilities
Another measure of ability to meet current obligations. Less accurate than the acid test
for very near term, but probably better a measure for six months to a year out, since it
contains receivables and inventories as well as cash and near cash. The rule of thumb is
2-to-1, though this will be affected by seasonality.
• Receivables Turnover = Sales ÷ Receivables
Measures the effectiveness of credit and collection policies. If your ratio is going
down, collection efforts may be improving, sales may be rising, or receivables are
being reduced. If your ratio is going up, sales credit policies may be changing,
collection efforts may be flagging, or sales may have taken a nosedive.
Caution: This ratio depends on when receivables are measured and the seasonality of the
business. Careful bookkeeping is also essential. The same applies to inventory turnover:
Make sure that the measures are comparable from month to month. Use average
receivables (inventories) if you can.

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KEY RATIOS FOR YOUR BUSINESS
• Days Receivables = 30 ÷ Receivables Turnover
Another way of looking at receivables. Particularly useful in explaining
graphically what changes in credit and collection operations do to a
business.
• Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
A measure of how well inventory is managed. Most businesses have a steady
inventory turn. Compare your figures from year to year, asking yourself what
causes the inevitable fluctuations. Small fluctuations are probably due to the flow
of work. If you produce one jumbo jet a year, your inventory picture will be very
different from that of a dealer of ripe tomatoes.
• Gross Margin Rate = Gross Margin ÷ Sales
Permits comparison of margins over months with dissimilar sales. Ideally, this
holds pretty steady in good months and bad -- but it depends on your business. It
can distort fluctuations if sales are erratic.
• Net Profit Rate = Net Profit ÷ Sales
An overall batting average: The aim is consistency over the long haul, not
just short-term stardom.

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KEY RATIOS FOR YOUR BUSINESS
• Return on Assets (ROA) = Net Profit ÷ Total Assets
A better profitability measure than ROI. ROA shows how well you're using
your assets. However, since profits are a volatile short-term measure, this
should also be taken with a grain of salt. The long-term trend is what
matters. A large investment in fixed assets to handle growth will seriously
alter this ratio.
• Return on Investment (ROI) = Net Profit ÷ Net Worth
(Note: Net worth might show up on your financial statements as
shareholder's equity.)Another profitability ratio, best looked at
occasionally, because it tends to magnify short-term shifts in thinly
capitalized companies.
All ratios must be taken in context. The reason to look at them on a monthly
basis is to make sure that you spot trends as they develop, not afterward. If
you are doing something exceedingly well, you need to know it. And if
something is wrong, it's better to find out sooner than later.

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KEY RATIOS FOR YOUR BUSINESS
• Common Size Ratios can be developed from both B/S & I/S
– Calculate each line item on the statement as a % of the total
– Common Size Ratios make comparisons more meaningful ; they
provide context for your data
• Working Capital = Total Current Assets – Total Current
Liabilities
It represents the amount of capital invested in resources that are subject to
relatively rapid turnover (such as cash, accounts receivable and inventories)
less the amount provided by short-term creditors. Working capital should
always be a positive number. Lenders use it to evaluate a company’s ability
to weather hard times.

11. Managing
Capital

12. Better capital management can accelerate your
journey to market leadership.
CAPITAL IS THE LIFEBLOOD OF EVERY BUSINESS

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THE FINANCING DECISION
• Flexibility - Today’s financing decisions will influence
tomorrow’s financing decisions
• Risk – Financing with debt will increase risk
• Income – Financing can influence earnings & thus
affect return on equity
• Control – Financing could change control
• Timing - Financing decisions need to be timed to
take advantage of the marketplace

14. BASIC CONSIDERATIONS IN MANAGING CAPITAL
• Capital for any business – new and growing can be:
• Capital infusion through stock/shares by founder, management, family,
friends & Investors
• Debt – bonds (both long & short term), Debentures, overdraft, term loans,
etc.
• Capital can be Short-term or Long-term
• Capital can be internal or external
Effective Capital management is to find an "optimal" capital
structure - the right mix of capital sources (debt and equity) that
minimizes the overall cost of capital and maximizes values to the
shareholders (owners of the business).

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SOURCES - SHORT TERM & LONG TERM
• Short Term Capital:
• Bank overdraft/Loans
• Trade credit
• Deferred Expenses
• Factoring/Receivables Financing
• Personal Loans
• Medium Term Financing:
• Term Loans
• Leasing/Hire Purchase
• Long Term:
• Shares/Stocks/Equity Financing
• Mortgage Loans
• Retained earnings
• Venture Capital/PE
• Project Finance

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UTILIZATION OF CAPITAL
• Short Term Capital:
• Use short term capital sources for meeting working
capital needs, inventory, trade purchases
• Medium Term Financing:
• Used to finance purchase of machinery, office
equipment, IT equipment, and projects that will
provide returns in 2-3 years
• Long Term:
• Typically used to finance large and long term capital
projects – acquisitions, buying capital equipment,
construction of factory/office

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OVERTRADING
• Overtrading is another term for undercapitalization:
• Support a large volume of business from too small a
working capital base
• Supply of funds failing to meet demand for funds
• Could result in a liquidity crisis
• Serious, sometimes fatal!

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 Vinod is a serial entrepreneur, consultant, CFO & investor who during his
15 year career in the US led companies through multiple financings,
M&A and exits. He has taken two companies through NASDAQ listed
offerings. His domain expertise includes technology, healthcare,
outsourcing, services, food services, hospitality and manufacturing.
 As a serial entrepreneur, he has cofounded companies in technology,
services, outsourcing and hospitality. Successful exit with ROI to
investors & founders.
 Experience includes M&A, cross-border operations, business
development, finance, startups, governance, IPO, management &
operations
 CFO of an early stage Venture Capital Fund in India; has helped raise
more than US$100 million for two funds managed by the VC fund.
Familiar with fund raising, LP relations, due diligence, deal making,
portfolio management and reporting.
 Founder of boutique consulting company that has worked with early and
growth stage companies providing financial management, operations
and strategy execution consulting. Clients include VC funds, US &
European MNCs, etc.
 MBA (JWU-US), MS – Finance (Bentley - US), CPA & CA . Angel
Investor - member of Indian Angel Network. Co-founder, TiE Atlanta,
Charter Member - TiE. Co-founder & Director – Atlanta Hitech CEO
Council
VINOD KENI

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Vinod Keni
vkeni@aquariangroup.com
+91-9845414179
Contact