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Understanding business performance indicators goes far beyond the simple calculation of revenue minus expenses. It requires careful attention to key aspects of a company’s capital and cash flow.
Every company must generate profit to remain viable—a clear perspective for entrepreneurs seeking a return on their investment. Conceptually, this logic is straightforward, but in practice, it can be complex. Some businesses generate cash without being profitable, while others may be profitable on paper yet have little cash on hand. These scenarios demonstrate that subtracting expenses from revenue is not enough; understanding financial dynamics is critical.
Key Financial Indicators
Revenue, profitability, and cash flow are among the primary metrics for assessing a company’s financial health. Accurate data is essential for reliable calculations and informed decision-making. Cristiano Corrêa, coordinator of the MBA in Business at Ibmec São Paulo, explains:
“Most issues start with data collection. Many business owners don’t know their exact revenue—they only have an estimate.”
“The second step is understanding what happens after revenue is generated until profit is actually available as cash,” he adds.
Confusing revenue (income generated from sales) with profit (revenue minus expenses) is common. Corrêa clarifies:
“Profit is the final stage, after all expenses have been accounted for.”
Cash Flow vs. Accounting Profit
Accounting profit can appear clearly in the Income Statement (DRE), yet the cash may not be available. For instance, if a company generates R$100,000 in revenue but incurs R$80,000 in expenses, the accounting profit is R$20,000. However, if sales are on credit to be collected in 60 days, but supplier payments are due in 30 days, the cash is insufficient to cover immediate obligations.
Drawing profits at this stage could leave the company short by R$20,000, creating liquidity risks. Understanding and managing this cycle is essential, particularly in planning withdrawals and reinvestments.
Compensation Challenges
Marcos Moraes, CEO of Maya Financial Consulting and BPO, notes that financial indicators often become complex as small and medium-sized enterprises grow. A common challenge is separating personal and business finances.
“The key is distinguishing between revenue, the owner’s salary as an executive (pró-labore), and profit—which is what remains from operations. Profit may contribute to owner compensation, but only if the business performs well,” Moraes explains.
Careful pró-labore planning is crucial. Fixed salaries should not rely on variable profit, which should be treated as a potential additional gain. Managing this requires coordinated analysis of the income statement, balance sheet, and cash flow, ensuring that withdrawals are sustainable and aligned with operational performance.
Integrating Accounting and Management
Moraes emphasizes that accounting and managerial insights must work hand in hand. Understanding both the financial movement of profits and the operational capacity to sustain withdrawals enables better decision-making, strategic planning, and financial management.
By differentiating revenue, profit, and cash, companies can avoid financial risks, ensure liquidity, and make informed choices about growth and investments.
Source: Revista Conmax
