By the way, I think I am qualified to talk about this subject because I am a Chartered Accountant by training, and have a Second-class Honours Degree in Accountancy from National University of Singapore in 1988, in addition to a MBA from Scotland in 2000. There are 3 simple ways that you too can be financially intelligent today:
- Know that Cash Flow is better than Profits, and Profits are better than Wages. Cash Flow is money coming in and out whereas Profits are just what you make in a period. Profits can be boosted by one-off events (like a big business deal) but Cash Flow is difficult to be manipulated because it is over a period of time (like 4 years). Of course profits are always better than wages because you need to put in the hours of work to earn wages whereas profits can be earned passively (without active work) like collecting rental.
- Understand that there is a difference between Long Term and Short Term, where Short Term refers to within a year. Many transactions may look unprofitable in the short term but could be very profitable in the long term. Like investing in your learning, in the long term you earning ability will rise and that will increase your earnings for a long time
- Financial Statements are the 'Report Cards' of how an organization has done in the previous financial year but they are NOT a way to health. Nor are any awards received by the company on corporate governance. The only way you can tell how healthy a company is today is to see how they are doing today and tomorrow. A good example is this listed company called Eratat Limited, As recent as November 2013, they received an award for corporate governance. Their financial statements for 2013 even showed healthy cash balance. But 3 months later in January 2014, the company's trading on the Singapore Exchange was suspended because the company defaulted on a interest payment of a bond. As at July 2014, this company is virtually bankrupt as it has no cash but lots of debt. (read here for more) To equip yourself with financial intelligence, come for this new course Financial Intelligence on 8 October 2014 Wednesday. Readers of this blog can attend at a 50% discount, i..e at $199 instead of $398. Email to us at andythecoach@gmail.com for more information. Related articles:
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Wow, amazing block structure! How long
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In the content!