Chapter 11 Financials

 Balance Sheet  Income Statement  Statement of Cash Flows  Why do we even need financials – can’t we just see that we’ve got money in the bank, and that’s good enough?!?!

 Gives a snapshot of one-time performance  Assets  Things that can be used as factors of production  Liabilities  Things that the company owes to someone else.  Owners’ Equity  The stash of value that has been contributed by the owners and that has been added to by each period’s net income.

 Shows performance over a period of time  Compares the revenue you brought in and the expenses you incurred to make that revenue  Net sales  All sales minus returns  Cost of goods sold  Value of the goods you used to make things to sell plus shipping  Margins  Gross, operating, and net

 Shows changes in working capital  Current assets – current liabilities  Starts with net income and works back throughout the year and  Adds back sources of funds as if you didn’t have them (loans, contributions, accts receivable, inventory sold, depreciation)  Subtracts uses of funds throughout the year: plant and equipment, inventory, dividend payout, debt paydown, accounts receivable lended, payments to creditors

 More helpful to the new entrepreneur than a traditional cash flow statement  List all of your monthly expenses  Come up with a revenue estimate for the month  See what is left over, in terms of cash.

 Common Sizing  Reducing raw figures to ratios so that we can make comparisons ▪ Big companies with little companies ▪ Previous years to this year  Really bad signals  Decreasing sales, falling profit margins  Increasing overhead  Increasing inventory  Increasing accounts receivable

 Great mentality from your book  When all else fails, don’t spend more today than you brought in yesterday!  Only 26% of small businesses use ratio analysis at all.  Simplicity of control information is what is key ▪ Find out what is important to know, and only measure that.

 Current ratio  Current assets/Current liabilities  Working Capital  Current assets-Current liabilities  Debt to Equity  (Debt + Current Liabilities) / Owner’s Equity  Debt to Assets  (Debt + Current Liabilities) / Total Assets