The 3 Financial Statements
explained in 60 seconds 👇
explained in 60 seconds 👇
The 3 of them are the
→ Profit & Loss
→ Balance Sheet
→ Statement of Cash Flows
You may hear of the Statement of Changes in Equity, or the Notes to the Financial Statements
but those are less common, and are often excluded
→ Profit & Loss
→ Balance Sheet
→ Statement of Cash Flows
You may hear of the Statement of Changes in Equity, or the Notes to the Financial Statements
but those are less common, and are often excluded
1/ The Profit & Loss
What it tells you → your income, and your expenses
It also helps you analyze profitability, at different levels
ex:
Gross Profit → Revenue - COGS
Net Operating Income → Gross Profit - Opex
Net Income → all income - all expenses
What it tells you → your income, and your expenses
It also helps you analyze profitability, at different levels
ex:
Gross Profit → Revenue - COGS
Net Operating Income → Gross Profit - Opex
Net Income → all income - all expenses
It's separated by:
Revenue → you're income
Cost of Goods Sold (COGS) → the cost to carry out your income
Operating Expenses → The costs to run your business
Other Income / Other Expense → non core income / expense items
Revenue → you're income
Cost of Goods Sold (COGS) → the cost to carry out your income
Operating Expenses → The costs to run your business
Other Income / Other Expense → non core income / expense items
2/ The Balance Sheet
What it tells you → The net worth of the business
Or put differently,
What the business owns → Assets
Owes to creditors → Liabilities
and Owes to Owners → Owner's Equity
it shows this all on a cumulative basis
What it tells you → The net worth of the business
Or put differently,
What the business owns → Assets
Owes to creditors → Liabilities
and Owes to Owners → Owner's Equity
it shows this all on a cumulative basis
The Balance Sheet to me is the most important of the 3 statements
Why? 3 reasons
1️⃣ It helps you understand your return on investment
2️⃣ It contains a lot of data from your P&L (via retained earnings)
3️⃣ It tells you about your cash...your most important metric
Why? 3 reasons
1️⃣ It helps you understand your return on investment
2️⃣ It contains a lot of data from your P&L (via retained earnings)
3️⃣ It tells you about your cash...your most important metric
3/ The Statement of Cash Flows
What it tells you → where your cash is moving
and it's presented in 1 of 2 ways:
1️⃣ Direct method → this is a clean way of seeing cash paid to suppliers, cash received from customers etc.
but it's real tough to produce
What it tells you → where your cash is moving
and it's presented in 1 of 2 ways:
1️⃣ Direct method → this is a clean way of seeing cash paid to suppliers, cash received from customers etc.
but it's real tough to produce
2️⃣ Indirect Method → this show's what's happening to cash by showcasing the movements in all other balance sheet accounts
It's a bit less intuitive to read, but it's really simple to produce
Usually, you'll see the indirect method being used
It's a bit less intuitive to read, but it's really simple to produce
Usually, you'll see the indirect method being used
The Statement of Cash Flows is separated by 3 sections:
1️⃣ Cash from Operating Activities → $$ movements related to operating the co
2️⃣ Cash from Investing Activities → $$ related to long term assets
3️⃣ Cash from Financing Activities → $$ related to investments & debt
1️⃣ Cash from Operating Activities → $$ movements related to operating the co
2️⃣ Cash from Investing Activities → $$ related to long term assets
3️⃣ Cash from Financing Activities → $$ related to investments & debt
TL;DR → the 3 Financial Statements are the Profit & Loss, Balance Sheet, & Statement of Cash Flows
P&L → your income vs expenses
BS → your assets (what you own), liabilities & owners equity (what you owe)
SOCF→ where your cash is going
P&L → your income vs expenses
BS → your assets (what you own), liabilities & owners equity (what you owe)
SOCF→ where your cash is going
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