The Ultimate Blueprint for an Insanely Successful Business

by Keith J. Cunningham

will want to monitor and maximize both. Profits ÷ Assets is the fundamental measure of a business’s ability to convert assets into profits. OCF ÷ Assets is the ultimate measurement of a business’s success. Measuring the trend line of these relationships is also critical to understanding and having optics on a business’s financial condition. A business which is experiencing a deterioration of its Return on Assets trend line is in jeopardy. For businesses that do not have significant assets on the balance sheet, an alternative definition of assets is “employees” or “payroll dollars,” i.e., Profit per Employee or Profit per Payroll Dollar (Chapter 8). Return on Assets, in which return is defined as profits, can be expressed in the form of two ratios multiplied together: Measuring and “trend-lining” both the effectiveness (Revenue ÷ Assets) and efficiency (Profits ÷ Revenue) are mandatory for understanding and diagnosing the underlying financial issues of a business. This ratio model can be expanded to determine the productivity of asset conversion into operating cash flow (OCF). Said another way: Business