Real stories and practical approaches from years of working with balance sheets, income statements, and cash flow puzzles across different business contexts
Last autumn, I spent three weeks with a manufacturing firm's financials. Everything looked stable on the surface—revenue growing, decent margins. But their operating cash flow was telling a completely different story.
The disconnect came from inventory. They'd been ramping up production based on optimistic sales forecasts, tying up cash in materials and finished goods. Meanwhile, actual customer payments were slowing down. The income statement showed profit, but the cash flow statement revealed a business heading toward a liquidity crunch.
Stories from real analysis work, with the messy details that textbooks skip over
A retail client had perfect gross margins and growing sales. Their working capital ratios looked fine at first glance. But when we dug into inventory turnover by product category, we found nearly 40% of their stock hadn't moved in eight months.
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Everyone knows the current ratio should be above 1.0. But I've seen companies with a 2.5 current ratio struggle to pay bills, and others with 0.9 running smoothly. Context matters more than the number itself.
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A tech services company doubled their revenue in eighteen months. The board was thrilled. Then we looked at customer acquisition costs against lifetime value. They were spending nearly as much to win clients as those clients would ever generate.
Read more →You can manage earnings with accounting choices, but cash flow is harder to manipulate. When operating cash consistently lags net income, something's off. Either the company is growing too fast and needs working capital, or revenue quality is questionable. I always start with the cash flow statement now.
Most people glance at working capital and move on. But changes in receivables, inventory, and payables reveal how the business actually operates. Receivables jumping while revenue stays flat? Payment problems. Inventory building without sales growth? Production issues or demand forecasts gone wrong.
The mix between short-term and long-term debt shows how management thinks. Heavy short-term debt creates refinancing risk. All long-term debt might mean they're being too conservative. The balance depends on the industry and growth stage, but the structure always tells you something about their confidence level.