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One of my most popular blog series ever was on Term Sheets. I’ve been pondering another series for a while and a reader inspired me this morning to start one on Financial Statements.
I think your post this morning opened up a subject area you might wish to develop further. Your point was start with the cash flow because of the confusing nature of GAAP. In fact almost all sophisticated readers of financial statements start with the balance sheet or the cash flow and read the P&L last. I think some posts on balance sheet and cash flow analysis techniques or working capital management for a startup would be useful, for the following reasons:
- I suspect most of your readers are probably young, in their first startup and unsophisticated financially
- You and most of the VC blogging community put a lot of emphasis (correctly) on revenue and revenue growth which leads the unsophisticated to focus almost exclusively on the P&L
- While you correctly talk about cash flow with some frequency the unsophisticated do not understand well the relationship between the cash flow and the balance sheet.
Having taught these subjects for several years and been involved in several workouts/turnarounds, I am confident that balance sheet/ cash flow analysis is not either obvious or well understood (even after an MBA). Good working capital and balance sheet management leads to capital efficiency, a theme I know is dear to your heart.
At the risk of being tedious, boring, ponderous, dull, and monotonous I’m going to take on Financial Statements over the next few months. I hope you eventually find them as stimulating as I do.