If you can’t measure, you can’t manage it

Business principle that drives majority, if not all, of business decisions and practices.

This one-liner also gave birth to and relevance to the ’Data is the New Oil’ catchphrase. Data and measurement of data are two of the most important things in the business world - today and are unlikely to change anytime sooner.

Today, we shall be dissecting this financial data conundrum, learning its workings, and marrying them with the intricacies of the cryptocurrency industry.

Measuring The Financial Health of A Business

The financial health of a business is a complex topic. Simpler were the times when higher profits meant great business and vice-versa. Today, however, the business dynamics have changed so much that financial health is a multi-faceted concept. It is a combination of multiple metrics and factors.

Several metrics can be generated by looking at the financial data of a business. Let’s name a few: 1. Net profit margin, 2. Debt ratios, and 3. Cash flow. These metrics, at face value, are mere numbers. Now, read them as, 1. Profitability of a business, 2. Ability to meet external financial obligations, and 3. Financial stability.

Exactly what do the financial metrics bring to a business? They help evaluate the performance of the business in a quantifiable way.

However, different metrics bring different value depending on the type of business/project. While inventory turnover makes sense for a manufacturing company, it is irrelevant for a tech-based startup. On the other hand, the cost of customer acquisition is integral for the latter while it is unrelated to the former.

Picking the right metrics to analyse is important. Only then using them as a building block for business decisions and strategy make sense.

Financial Reports That Fuel Planning and Decisions

Traditionally, the income statement, also called the profit and loss statement, along with the balance sheet and the cash flow statement are the holy trinity of financial information.

Profit or Loss Statement (Income Statement)

This is a record of all the expenses and incomes of a company.

Think of it like a household budget. Incomes like salary, rental income, part-time wage, and expenses like groceries, clothing, and fuel are recorded here. This reflects how the company or household has financially performed over a period of time. Is the spending more than the earning? How much are the savings? Etc.

Balance Sheet

It is a snapshot of the assets and liabilities as a company at a specific time. This helps in answering questions like - How much is owed in comparison to how much is owned? How much of the business’s assets are liquid? Etc.

Cash Flow Statement

The cash flow statement is an integral tool to understand the financial health of a business. It takes into account the cash inflows and outflows of a company. Investors value cash flow. It helps them know how efficiently a company can generate cash and make debt payments.

These three statements are a must-have to understand the financial health of a business.

How are these statements prepared? They are sourced from primary books of accounting i.e. journals and ledgers. These accounting records are managed in real-time and present a rough overview of each transaction of a business.

But what if these data points themselves are tough to access.

Cryptocurrency Firms Are Devoid Of The Magic of Organised and Collated Data

The cryptocurrency industry, as a whole, is young and shoulders a fair load of expectations and criticism. The industry is too dynamic and moves at a breakneck speed. While this pace is ideal for a disruptive space like cryptocurrency, the drawback is the lack of support systems in place as of today.

The absence of organised data is one of the key stumbling blocks for the industry. Today, cryptocurrency businesses are finding it tough to access credible financial data.

Cryptocurrency transactions are usually recorded on a public blockchain. This means each transaction  is likely to be submerged in a sea of random transactions within sections. Also, transactions are tagged to the contract address of the parties which are long strings.

Tracking all of the transactions requires scanning across different block explorers.

And this tracking  needs to be done for each of the wallets, protocols, and blockchains that a crypto project is involved with.

This is a manual, time consuming and cumbersome process. Forget near real time data and positions across the entire portfolio.

Moving forward, with better tooling and more consistent data tracking, accurate near real time financial data on the entire portfolio will be available to the projects for efficient, effective and timely decision making.

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