Education
Business
Economics
Finance
Accounting
Small Business
Financial Statements
Profitability
Cash Flow
Financial statements are scary, but not hard.
Let me break them down for you:
Let me break them down for you:
Each company has 3 financial statements that answer 3 different questions:
1. Income Statement (Are you profitable?)
2. Balance Sheet (Are you healthy?)
3. Statement of Cash Flows (Where is cash going?)
1. Income Statement (Are you profitable?)
2. Balance Sheet (Are you healthy?)
3. Statement of Cash Flows (Where is cash going?)
1. Income Statement
This statement tells you whether or not you’ve made a profit over a given period of time.
The formula: Revenue - Expenses = Profit
This statement tells you whether or not you’ve made a profit over a given period of time.
The formula: Revenue - Expenses = Profit
Expenses can be further broken down into two buckets:
• Cost of Goods Sold or COGS (cost related to revenue)
• Overhead expenses (cost required to run the business, but not directly related to revenue)
• Cost of Goods Sold or COGS (cost related to revenue)
• Overhead expenses (cost required to run the business, but not directly related to revenue)
The income statement helps you:
• Identify how much revenue you’re bringing in
• Understand if you’re making money on your product
• Identify if your fixed or overhead costs are too high
• Itemize your costs to make better decisions
• Identify how much revenue you’re bringing in
• Understand if you’re making money on your product
• Identify if your fixed or overhead costs are too high
• Itemize your costs to make better decisions
2. Balance Sheet
This statement tells you a company’s financial strength at a specific snapshot in time.
The Formula: Assets = Liabilities + Equity
This statement tells you a company’s financial strength at a specific snapshot in time.
The Formula: Assets = Liabilities + Equity
Assets are what you own:
• Cash
• Accounts Receivable (money owed to you)
• Inventory (product in your possession but not sold)
• Fixed Assets (property, equipment, machinery, or vehicles)
• Intangible Assets (software, licenses, trademarks, or goodwill)
• Cash
• Accounts Receivable (money owed to you)
• Inventory (product in your possession but not sold)
• Fixed Assets (property, equipment, machinery, or vehicles)
• Intangible Assets (software, licenses, trademarks, or goodwill)
Liabilities are what you owe:
Current Liabilities (owed in < 1 year)
• Accounts Payable (money owed to vendors)
• Credit Card Payables (just a different accounts payable)
• Short-term debt (obligations to pay)
Long-term liabilities (owed in > 1 year)
Current Liabilities (owed in < 1 year)
• Accounts Payable (money owed to vendors)
• Credit Card Payables (just a different accounts payable)
• Short-term debt (obligations to pay)
Long-term liabilities (owed in > 1 year)
Equity is how much the company is worth on paper:
• Money put in the business
• Money taken out of the business
• Earnings retained in the company
• Money put in the business
• Money taken out of the business
• Earnings retained in the company
From the balance sheet you learn:
• How strong the business is financially
• Whether short-term obligations can be met
• The amount of debt a company has
• The book value of the company
• How strong the business is financially
• Whether short-term obligations can be met
• The amount of debt a company has
• The book value of the company
3. Statement of Cash Flows
This statement helps you understand how cash has been spent over a period of time.
The formula: Net Increase/Decrease of cash during period + Cash at beginning of period = Cash at end of period
This statement helps you understand how cash has been spent over a period of time.
The formula: Net Increase/Decrease of cash during period + Cash at beginning of period = Cash at end of period
The net increase/decrease is broken down into 3 categories:
• Operating Activities (cash collected from sales versus cash paid related to sales)
• Investing Activities (new equipment purchased or sold)
• Financing Activities (change in debt or inflow of capital)
• Operating Activities (cash collected from sales versus cash paid related to sales)
• Investing Activities (new equipment purchased or sold)
• Financing Activities (change in debt or inflow of capital)
When analyzing this statement, you are:
• is your cash flow positive or negative?
• why your cash flow is positive or negative
• whether operations is carrying its weight
• what investments or financing is costing
• is your cash flow positive or negative?
• why your cash flow is positive or negative
• whether operations is carrying its weight
• what investments or financing is costing
Today, I wanted to lay the foundation.
This week, I’m going to break each statement and tell you:
• Why they matter
• How to read them
• What questions to ask
Follow me so you don’t miss the rest of the series: @KurtisHanni
This week, I’m going to break each statement and tell you:
• Why they matter
• How to read them
• What questions to ask
Follow me so you don’t miss the rest of the series: @KurtisHanni
If you enjoyed this thread, retweeting the first tweet helps support me and spread the knowledge:
If you want to dive deeper, join @IAmCoachClint and me in our upcoming cohort.
In 3 days we’ll help you:
• make numbers-informed decisions
• communicate your numbers with clarity
Join now: maven.com
In 3 days we’ll help you:
• make numbers-informed decisions
• communicate your numbers with clarity
Join now: maven.com
I wrote about the Income Statement today. Read it here:
Here is a breakdown of the Balance Sheet:
I talk about why you need to understand financials in my latest podcast.
You can check it out here: delveintomoney.com
You can check it out here: delveintomoney.com
Here is a breakdown of the Statement of Cash Flows:
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