I’m returning home from a trip to Santa Clara after two days of training with my friends at Silicon Valley Bank (SVB). It was a good trip to the west coast. I enjoy visiting the Bay Area. I was born in Palo Alto and got my MBA at UC Berkeley the Bay Area is like a second home to me. Almost always good weather, always good food and good people but let’s not talk about the traffic.
This class was a fun one, there were lots of great questions which made the two day class move fast. In this class we spent a lot of time on cash flow and some key banking ratios. Cash flow is always a new and sometimes difficult topic for my classes. Most managers I train know a little bit about the income statement or P & L and a little bit less about the balance sheet but not much of anything about the cash flow statement. It’s a bit ironic that is the case because on Wall Street the cash flow statement has never been more important. So understanding this statement is becoming more important.
One of the challenges of training the group at SVB is the fact that they want to know the financial statements for their banks and also the statements for their customers who are technology businesses and wineries to name a few. These businesses have very different financials and cash flow statements than a bank would have and SVB is even unique among banks in its approach. This makes the class both interesting and challenging.
This particular class really dug into the material and learned a lot in the process. We were able to outline the key cash flow number with investors, ‘free cash flow’. Free cash flow is simply operating cash flow less the amount a business spends on new capital. This number represents the cash available to a business after it has made the key investments required for the next year.
A business that has free cash flow has a lot of good options. With free cash flow a business can pay down debt, buy back its stock or provide dividends to its shareholders, make acquisitions to name a few options. The bottom line is if you can have cash you have options and if you don’t, well then you don’t. A good banking business should understand the cash flow of its clients and make sure that the client does too. We had good discussions around this topic.
I had two great days of finance and I was able to make my way down to Santa Cruz on the night between sessions. I had two things on my agenda in Santa Cruz. First, dinner at Cafe Cruz, a personal favorite of mine. If you go I recommend grilled artichoke and fish taco salad although it’s hard to go wrong at that restaurant. Then on to the Sock/Shoe shop of Santa Cruz, lots of cool socks and shoes. I really have a sock and shoe thing and of course I found some winners at one of my favorite shoe and sock place including a gift for my wife for Mother’s Day. So this clearly was a productive trip from a professional and family management standpoint.