Fortune 500 CFO Zheng Yongqiang: The key to enterprise management is to manage three things well

The key to enterprise management is to manage three things well: products, efficiency, and finances. So, how do business managers judge the performance of these three indicators of the enterprise?

As you may know, a company has three main financial statements: balance sheet, income statement, and cash flow statement. These three financial statements are the most commonly used in enterprise management. The so-called product refers to the main product sold by the enterprise, which brings profits to the enterprise. Therefore, the product represents the profit situation of the enterprise and corresponds to the income statement. Efficiency refers to the operational efficiency of a company's assets, corresponding to the balance sheet. Financial resources refer to the management of existing funds and financial leverage by enterprises, corresponding to the cash flow statement. The key elements of enterprise management can be judged through some common indicators, which are hidden in our financial statements.

Some people may say, what's so difficult about looking at financial statements? Isn't it just assets, liabilities, income, and expenses? Indeed, it is not difficult to understand the numbers on financial statements. The key is how to identify the problems that exist in the enterprise, how to find opportunities for improvement, and how to find effective management methods.

1. Product: Check the profit and loss statement

To judge the quality of a product or service, there are two main factors to consider: "whether it sells well" and "whether it makes money". Good sales indicate good sales, customer satisfaction, and making money is the key to the survival of a business. Selling well doesn't make money, the more a company sells, the more it loses; Making money is difficult to sell, and businesses cannot survive without sales. When companies focus on products, they should achieve both "easy sales" and "profitability".

What can tell you if a company's products or services sell well and make money? Profit and loss statement! The first line of the income statement (simplified income statement as shown in Table 1-1), also known as the "TopLine" in English, usually represents a company's operating income. The success or failure of a company's products or services depends on this number. The larger the number, the better, and the faster the growth, the better. The corresponding line to the first line is the last line of the income statement, which is the "BottomLine". It is the company's net profit, and whether it makes money or not depends on this number. Net profit is a positive number, representing making money, and the larger the positive value, the more money it makes; If the net profit is negative, it represents a loss of money, and the larger the negative value, the greater the loss. So the first and last lines generally have higher values, which is what we call a company that sells well and makes money.

We must also pay attention to the fact that sales profits can never exceed sales revenue, as businesses inevitably have costs, even if there are no tangible products, there will be labor costs, except in cases of falsifying accounts. In addition, we should not only focus on "selling well and making money", but also pay attention to the relationship between the two. The companies we like should be those that sell well and make more money. Here, 'more profitable' refers to a higher net profit margin for a company, meaning that with the same sales revenue, the cost is lower and the net profit is higher. Apple is such a good company, not only selling its products well, but also having a high profit margin.

When focusing on products, we mainly look at the profit and loss statement of a company. Whether a company's products are good or not depends on whether the situation reflected in the profit and loss statement is good.

2. Efficiency: Check the balance sheet

Next, let's take a look at the efficiency of the enterprise. What indicators can be used to determine the level of enterprise efficiency? What aspects can enterprise efficiency management start from?

We often hear people say 'a certain company has high efficiency' or 'a certain machine has high production efficiency'. Here, efficiency generally refers to the efficiency of a certain asset, individual, or even project. We usually do not talk about the efficiency of a certain product.

Vanke, the leading enterprise in China's real estate industry, is not only famous for its boss, but also for its high efficiency in building houses. Other companies need 2 years to build houses, while Vanke can basically complete them in 1 and a half years. What benefits will such high efficiency bring to Vanke? As is well known, Vanke has become the leader of the real estate industry in just over 10 years, and has been the "big brother" of the real estate industry for nearly 10 years. The reason behind this is actually very simple: efficient enterprises can produce and sell more products in the same amount of time, obtain more income and profit returns, so the return on investment will be higher, and the enterprise scale can be larger. This is the greatest help and practical significance of efficiency for enterprises.

In financial terms, high efficiency means that a company operates at a faster pace, with shorter production, sales, and payment cycles compared to others. The production cycle is related to the machinery and equipment of the enterprise. The higher the production efficiency of the machinery and equipment, the shorter the production cycle; The sales cycle is related to the inventory products of the enterprise, and the faster the inventory products are sold, the shorter the sales cycle; The collection cycle is related to the ability of the enterprise to collect accounts receivable. The faster the accounts receivable collection and the shorter the collection cycle, the higher the efficiency of the company's collection management.

Where can you find out about the production cycle, sales cycle, and payment cycle data mentioned above? As can be seen from the above, the production cycle, sales cycle, and payment cycle of an enterprise are directly related to the management efficiency of its fixed assets (machinery and equipment), inventory (goods in stock), and accounts receivable (customer debts). The quality of fixed asset, inventory, and accounts receivable management directly affects the efficiency of the enterprise. Fixed assets, inventory, and accounts receivable are the main components of enterprise assets, so to manage enterprise efficiency, it is necessary to manage the utilization efficiency of enterprise assets. So, the balance sheet is a financial statement used to monitor the efficiency of a company. By interpreting, analyzing, and managing the balance sheet, combined with the elements of the income statement, we can assess the efficiency of a company.

3. Financial resources: Check the cash flow statement

The competition among enterprises is not only a competition of "products" and "efficiency", but also a competition of "financial resources". Which table is needed to understand the financial situation of a company? Cash flow statement. The cash flow statement records the inflow, outflow, and utilization of a company's cash, where money comes from and goes, and can be easily understood by looking at the cash flow statement.

However, just knowing where the money comes from and where it is used is just the first step. What you need to explore is how to improve the efficiency of fund utilization. I have heard a story before about a shooting athlete. When he first started training, his coach gave him 300 bullets a day, but he was careless during training and his performance never improved. Afterwards, the coach changed his training method, giving him only one bullet per day and telling him not to leave the shooting range if he missed the bullseye. From then on, he became particularly serious during training. This person was the first Olympic shooting champion of the Soviet Union, and his name was Bogdanov. This story illustrates that success does not depend on how many resources you have, but on how well you utilize them. The same principle applies to running a business. Do wealthy and powerful enterprises necessarily succeed? Not necessarily, many financially strong companies have used up their money without receiving the expected returns, while companies that efficiently utilize their funds often become the vanguard. So, 'financial power' here refers to the ability to utilize funds.

Let me give you another familiar example. There is a house on the market with a current market value of 1 million yuan. As ordinary people, we are likely to give up everything we have and pay for the house with all the cash we have on hand. After several years, when the housing price rose to 2 million yuan, we sold it and made a net profit of 1 million yuan. At this point, we are already very happy. However, faced with the same opportunity, there are some people who have taken a different approach. They used the 1 million yuan they had on hand to buy 10 houses, paying a down payment of 100000 yuan for each house, and the remaining money was borrowed from the bank. After several years, when the housing prices rose to 2 million yuan, they sold them all and earned a total of 10 million yuan, which is 10 times more than what ordinary people earn!

This is not a fictional story. More than a decade ago, Wenzhou people did it this way. They cleverly used bank loans, and when we earned 1 yuan, they earned 10 yuan. This is also the widely praised business logic of "ten cans and nine lids" in the history of Zhejiang merchants. From a financial perspective, this is also a clever use of the ratio of assets to liabilities, commonly known as "financial leverage".

要把握一家企业的“财力”，不仅要看现金流量表这份监控企业现金流状况的表格，同时也要结合资产负债表上的资产负债结构（财务杠杆），用最优的方式充分利用企业的资本结构，以获得更高效的回报。

信息来源：财资一家

Editor He Yang of this website/Organizing