I have always believed that the long-term goal of business of all sizes should be to maximize shareholder value. Timely, accurate, and reliable management information is critical to analyze the success of value-enhancement strategies. Derrick Lilly’s article in the September/October 2010 issue of the Illinois CPA Society’s INSIGHT Magazine, “Become a High-Performance Company” discusses enhancing monthly financial reporting to include metrics which provide management greater insight into their operations. Mr. Lilly’s research indicates six key numbers to monitor: revenue, net income, cash flows from operations, total assets, total liabilities, and total equity. Lilly also presents four key ratios to me mindful of: asset turnover, profit margin, cash-flow yield, and debt to equity ratio.
The article emphasizes business should do the right things, for the right reasons in order to drive a superior return on investment. No single set of reporting matrices will work for all situations, and therefore each business needs to identify the appropriate financial measurements that best provide insight into its unique situation. Comparing the appropriate measures to benchmarks will help measure progress toward the ultimate goal of enhancing value.
