It's like the Balance Sheet of life. Where we are at a point in time.
Then I thought, what about the Profit & Loss Statement and Cashflow Statement? How does that fit into life?
Well, let's go through this.
A Balance Sheet is a snapshot of a company.
In life, well, it's could be seen as a snapshot of a particular time. Our life situation at a particular point.
Things could be good, or bad, it is what it is.
We're not talking purely about money, I mean, it's metaphorical.
We talk about strong balance sheets, weak balance sheets.
Some parts of our life may be good, finances may be good, but maybe other parts may not be as good, or vice versa. Kids, no kids, health, lack of health, talent or lack of it, parents to take care of, etc...
So we all have our current status in life.
When we review a company's P&L or Cashflow, it's pretty much, what's happening for the period.
What has the company been doing? And was it successful in what it was doing.
Did it make good decisions? Good strategy, good execution, etc...
A company could have a good strategy, but poor execution.
Or a bad strategy but with pure luck, everything turned out well.
A company might have good sales, but poor receivables, which can be seen in the P&L and CF statements.
Or a company might have good profits, but yet the profits might be coming from non-core operational activities.
Or a company may have a debt laden balance sheet, but yet it is part of their strategy, and it is able to make profits, but it might be a higher risk company as it might end up in financial difficulties if business turns bad.
So I would say... the P&L and CF of life...
Is what we did with what we have.
Something like, our decisions and how we managed our decisions.
Maybe someone may have made good decisions, but somehow ended up poorly due to bad luck.
Maybe someone made bad decisions, but ended up well due to good luck.
Or good decisions with poor execution,
Or good decisions with good execution, etc...
Like... some people might really study hard when they are young. But somehow they just aren't able to excel academically.
So that's a good decision, but poor balance sheet, some people aren't able to do well in school. BUT... doesn't mean they can't be successful in life. They can make other decisions and take other paths to do well in life.
Or some people may invest but invest in the wrong things.
Good idea, poor execution.
A lot of time, we talk about the Balance Sheets of Life...
Our assets, what we have, it's easier to discuss and talk about our Balance Sheets.
It's a snapshot. Like a photograph.
Balance Sheets are great to show off.
Nice bodies on Insta, faraway holiday destinations, atas food at pricey restaurants, etc.
But yet, shouldn't we also look at the P&L and CF statements?
Our paths to success, or decisions made to disaster?
We all have different Balance Sheets. We all have different assets and liabilities.
We all start out at different points in life.
And it is what we do with what we have that matters. Our decisions we made, how we capitalized on what we had and made something out of it.
Not so easy to show on Insta right?
Shouldn't we also celebrate that kid who underperformed in school but managed to make it in life?
Or someone who managed to rise out of poverty through making good strategy and execution?
For folks who started out with poor balance sheets, it's really really hard to get a stronger balance sheet in life. It takes a lot of good decisions, hard work, luck, persistence, sacrifice, discipline etc. So easy to have failed, so many correct decisions to make to be successful.
Everything needs to fall into place nicely.
And unfortunately we aren't able to easily reflect that on social media.
When assessing a company, all the financial statements are important.
Same as in life. We need to keep a strong balance sheet. It keeps us stable in times of crisis.
But the P&L and CF are also important. What we do with what we have and how we improve our balance sheet along the way.
In times of crisis, like COVID, the P&L and CF might not be doing well, but if the balance sheet is strong, then people will be able to better weather the downturn.
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