Do some people believe that business is just about making money?
Absolutely.

Do other people resent the belief that business is about making money?
Absolutely.

We believe they are both right. There is more to business than making money. And, a company won't be around to serve the customer if it doesn't eventually make money.

The Financial Scoreboard (FSB) focuses only on making money; but to use the FSB intelligently, always think beyond the numbers at the same time you are thinking about the numbers with FSB.

In a business context, what does it mean to make money? Some people would say Net Profit. And profit is crucial, but it is only one part.

Wouldn't you want your intelligent business decisions to put more cash in your company bank account, long term? Sure you would. And does profit guarantee more cash? No way. So is one bottom line enough? Maybe not.

We teach that profit and cash are crucial. Net Profit is the bottom line from the income statement. Operating Cash Flow (OCF) is the bottom line from the cash-flow statement.

And what about the balance sheet; doesn't it need a bottom line? Only if you want to use it as a management tool.
And our bottom line for the balance sheet is Return on Assets (ROA).

So we focus on three key financial statements: income statement, cash-flow statement and balance sheet. Each has its own unique bottom line.

So we focus on three bottom lines, as the financial goals of managers.

So how does a business know if it is really making money? Only, if all three bottom lines are healthy over the periods being analyzed, then can the company say that it is really making money.

And if a company is weak in any or all three bottom lines, what is the value of being very aware of such weakness(es) at the earliest possible moment? Probably, you responded "so that management can be proactive rather than reactive."

So use this FSB often, and you will always be clear about when the company you are reviewing is really making money, and when it isn't. And if you are then proactive about your knowledge, your time and money invested should payoff many times over.

Incidentally, this version phases in our fourth bottom line, which is Operating Cash Flow / Sales. But first, why did we wait until now to cover this ratio? We waited until now because it has taken a while to get businesses focused on using OCF as a performance measure, and this challenge is not over. At the same time, financial professionals are now experimenting with many OCF ratios. We believe that OCF / Sales clearly shows whether or not a company's Sales are paying off in terms of OCF, and is therefore a great performance measure. Also, we have noticed that many service businesses like this measure, because it has less distortion from creative accounting based on depreciation and amortization. Use all four bottom lines if you like, or stick with three if you are not after leading edge financial measures.