You only need to know 3 things to understand finance

You only need to know 3 things to understand finance

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2. Balance SheetHow healthy

2. Balance Sheet

How healthy is your business?

• Do you have cash? For how long?
• Can you pay your bills?
• Are you in debt & maybe don’t even realize it?

Want to know if

Want to know if a business is a winner to invest in, buy or build?

Read & understand:
• Income Statement: Revenue – Expenses = Profit
• Balance Sheet: Assets = Liabilities + Equity
• Statement of Cashflows (SCF): Starting Cash +/- Cash made/spent that period = Ending Cash

TL;DR1Three financial statements do

TL;DR

1Three financial statements do this for you:
– Income Statement = Are you profitable?
– Balance Sheet = Can you cover liabilities?
– Cashflow statement = Is cashflow positive/negative & why?

Lots of things in life are complicated biz finances don’t have to be.

Assets are what you

Assets are what you own:

• Cash
• Inventory (unsold product)
• Property, equipment or vehicles
• Licenses, trademarks or goodwill

The goal is to increase the above four buckets. Some take more time than others to fill.

Equity is what you

Equity is what you are worth.

What is leftover if you sold off everything & paid off all the debt.

Can current assets (your +) cover current liabilities (your -)?

You only need to

You only need to know 3 things to understand finance.

I could have saved myself:
– 2 years for my MBA
– $160,000 to pay for it
– 7 years at Goldman

If I just learned to read these 3 financial statements:

1. Income Statement WTF

1. Income Statement WTF does it do…

Reveals if you are profitable.
Shows if you are efficient.
Tells you how much $$$ you’ve made

The Income statement will

The Income statement will help you determine:

• If you are winning
• Understand which costs are preventing you from winning
• Make better decisions

3. Statement of CashflowsHow

3. Statement of Cashflows

How much cash has been grossed or lost over a specific period of time due to:

• Financing
• Operations
• Investments

Cashflow from Financing Raising

Cashflow from Financing

Raising capital from banks, investors or shareholders:

• Capital raised
• Dividends Paid
• Principal on debt

Liabilities are what you

Liabilities are what you owe:

• Accounts Payable
• Income Tax
• Credit Card Debt
• Mortgages & other Long-term debt

Cashflow from OperationsUsing cash

Cashflow from Operations

Using cash for business activities

• Rent
• Cash from Sales
• Income Tax
• Employee compensation

Cashflow from InvestingIncluding any

Cashflow from Investing

Including any company investments such as:

• Purchase & sale of assets
• Loans made or received
• Purchase or sale of machinery or equipment

Is cashflow positive or negative? Why? Are operations strong enough without financing or investments?

Two types of expenses

Two types of expenses on your income statement:

• Cost of Goods Sold (COGS) = Spend $$ to make $$
• Overhead expenses = fixed or variable costs to run the business (the cost of doing business)

Source

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