Lesson 24: Financials
I prepared my first set of financial documents when I was in elementary school, but it tracked candy instead of cash. Skittles, Starbursts, Snickers, and Reese’s Cups each had a line item in my notebook. As the colorful candy turned into empty wrappers, the balance would change in my records. These financials told a story about me.
Company financials tell the story of any company. This week, I reviewed the Delta Air Lines financials to understand their story since the pandemic brought the business to a complete stop in 2020. The Income Statement showed me both revenue and net profit margin increased year over year. The Balance Sheet showed me the ratio of their debt to operating profit has fallen each year. Finally, the Statement of Cash Flows showed me they have managed to spend less on Capital Expenditures as a percentage of Revenue consistently. I could turn the pages of their story over the years as I reviewed the numbers.
If you reviewed the weekly Balance Sheet of my candy financials, what story did it tell you about me? Reese’s inventory was falling faster than the others, so that might be my favorite (Reese’s is my favorite candy). If you looked at a company’s financials and saw revenue grow each year, what does that say about that company? That is for you to decide as an investor.
I will likely review the financials of 1,000 companies before I determine which one to acquire. When I acquire the company, our team will begin telling a story through the financials of that company. A. J. Wasserstein has published dozens of papers on Entrepreneurship Through Acquisition, and I heard him present online at a Black Search Network event this week. He identified four levers for growth: 1) price, 2) organic, 3) M&A, and 4) new products. He emphasized growth slowly but at a steady pace, so the financials will speak for themselves.
Post-acquisition, I want the business to tell a story of slow and steady growth. We will show growing demand through an increase in sales on the Income Statement. We will demonstrate discipline by paying down our debt balance year after year on our Balance Sheet. We will show efficiency with how we manage Capital Expenditures on our Statement of Cash Flows.
After starting with candy and reading the stories of other businesses, I am excited to write the story of my own business. My mission is to increase representation for Black leaders at the executive, investor, and board level where acquiring a trade school will write a narrative of operational excellence in the numbers.
Financials is Lesson 24. Next week, I will share Lesson 25: Fitness.
