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:
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
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
1. Income Statement WTF does it do...
Reveals if you are profitable.
Shows if you are efficient.
Tells you how much $$$ you've made
Reveals if you are profitable.
Shows if you are efficient.
Tells you how much $$$ you've made
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)
• Cost of Goods Sold (COGS) = Spend $$ to make $$
• Overhead expenses = fixed or variable costs to run the business (the cost of doing business)
The Income statement will help you determine:
• If you are winning
• Understand which costs are preventing you from winning
• Make better decisions
• If you are winning
• Understand which costs are preventing you from winning
• Make better decisions
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?
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?
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.
• 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.
Liabilities are what you owe:
• Accounts Payable
• Income Tax
• Credit Card Debt
• Mortgages & other Long-term debt
• Accounts Payable
• Income Tax
• Credit Card Debt
• Mortgages & other Long-term debt
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 -)?
What is leftover if you sold off everything & paid off all the debt.
Can current assets (your +) cover current liabilities (your -)?
3. Statement of Cashflows
How much cash has been grossed or lost over a specific period of time due to:
• Financing
• Operations
• Investments
How much cash has been grossed or lost over a specific period of time due to:
• Financing
• Operations
• Investments
Cashflow from Financing
Raising capital from banks, investors or shareholders:
• Capital raised
• Dividends Paid
• Principal on debt
Raising capital from banks, investors or shareholders:
• Capital raised
• Dividends Paid
• Principal on debt
Cashflow from Operations
Using cash for business activities
• Rent
• Cash from Sales
• Income Tax
• Employee compensation
Using cash for business activities
• Rent
• Cash from Sales
• Income Tax
• Employee compensation
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?
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?
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.
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.
Pss 2 edits:
Supposed to be a 2 not a 7 at Goldman.
Zero chance I could have stomached that for longer 😂
Also technically I have a PhD and MBA and I looked up the cost again it was actually $180k.
The rest still stands 🙏
Supposed to be a 2 not a 7 at Goldman.
Zero chance I could have stomached that for longer 😂
Also technically I have a PhD and MBA and I looked up the cost again it was actually $180k.
The rest still stands 🙏
Follow me @Codie_Sanchez for more threads on business, money and investing.
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