Parent Post
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)