Friday 7 October 2011

Notes from Book: Romancing the Balance Sheet

I conduct Financial Literacy course for my company colleagues. Hence I started to read this book to pick up few ideas to include in my course. Following are my notes from that perspective:
  • Two Rules of Good Financial Management
    1. Never invest your money without ensuring that the assets you acquire can generate a return which is at least equal to the cost of your capital.
    2. Invest your money in such a way that the assets will generate an inflow of funds before the liabilities demand an outflow.
  • Lessons from Rule No. 2
    • Long-term funds should be used for long-term purposes and short-term funds for short-term purposes.
    • Healthy organizations may use, or should use, some long term funds for short-term purposes.
    • But no organization should EVER use short-term funds for long-term purposes.
    • Healthy organizations must maintain a current ratio of about 2:1 and a quick ratio of a minimum of 1:1.

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