All of this discussion about ratios can seem daunting, but don’t get discouraged. As a WLP professional and former mathematics teacher pointed out to me, all her math students became discouraged about midway through the school year. They also felt better about what they were learning as time went on and they became more comfortable and confident. The important thing is not to give up. Familiarity, comfort, and confidence with ratios and financial statements make all the difference in helping your audience understand your value.

A balance sheet is where the organization tracks the amounts of assets, liabilities, and owner’s equity it has. Because money is always flowing in and out of an organization as a result of sales and purchases, the balance sheet is a snapshot of one point in time. The balance sheet reflects the position or financial health of the organization on a specific date.

The proportion, or size of each asset or liability in relation to others, is what is meant by the position of an organization. Too many liabilities versus assets can be a very risky and high-cost situation for the executives of an organization to manage. Likewise, lack of attention to assets such as accounts receivable or inventory can cause serious cash flow problems for the organization.

Operating ratios (such as days inventory outstanding) or financial ratios (such as return-on-assets) can give the WLP professional a quick idea of problems in the organization and, therefore, what executives will value from WLP interventions.

Examples of financial value chains were shown connecting WLP interventions to assets and liabilities. Chains could also have been drawn using operating or financial ratios as the leftmost Senior executive measure.

Because assets and liabilities are tied to the income and expenses that generated them, the same WLP intervention can be shown to affect financial imperatives for both profit and position. This is good news for the WLP professional, as this situation creates more options in communicating value.

Cash is different from profit because profit can be tied up in non-cash items such as inventory or AR. An organization might be making a great profit, but if all the profit is in non-cash assets, then the organization will stop running. Senior executives must always be looking forward to ensure that there will be enough cash on hand to pay employees and creditors and to keep the organization in operation.

A cash flow statement is where the organization tracks its increases and decreases in cash over a specified period. Cash flow statements have three sections. The first shows changes in cash from normal operating activities. The second shows changes in cash from investing activities, and the third shows changes from financing activities.

All items on the cash flow statement are linked to items on the income statement and the balance sheet. The net profit (or loss) on the income statement becomes the first line of the cash flow statement. The changes from last period to this period for the assets, liabilities, and owner’s equity of a balance sheet are transferred to the cash flow statement as changes in operating activities, investing activities, or financing activities.

Changes in assets move in the opposite direction as cash. If the asset increases, cash decreases.

Changes in liabilities or owner’s equity move in the same direction as cash. If a liability or owner’s equity increases, cash increases.

Too much cash on hand can be as much of a problem as too little. Senior management must make sure there is a wise use of cash at all times.

You may already have connected the value of your solutions to the income statement or the balance sheet. Knowledge of your impact on cash gives you even more variety and opportunity to point out the value of those same solutions to your organization.

The process of gathering information differs depending on whether you are internal or external to your target organization. External to an organization, you may have to deal with the fact that you may not have access to all the financial information you’d like. For corporations, you may be interested in only one segment of their business. Companies usually disclose little or nothing about individual subsidiaries or divisions with the only exception being that corporations are required to disclose results by “industry segment.” If the portion of the corporation that you are interested in is large enough, you may be able to find more details about it.

Alternatively, you may be interested in a privately held organization. Privately held organizations are not required to publish their financial information. If you are interested in a corporation based in another country, and that corporation trades stock on the U.S. stock exchanges, that corporation must disclose information in the United States according to the rules of the U.S. Securities and Exchange Commission (SEC). If the corporation is not traded on U.S. stock exchanges, you will find that other countries have different laws about what must be disclosed. The information you want may be provided in unfamiliar formats or not publicly disclosed at all. If you are interested in a government organization, still other rules apply for what must be published in each province, state, city, or country.