1 Basic Financial Statements Projections based on strategy and resources Income Statement Balance Sheet Cash Flow Statement
Also known as Pro Forma Statements
2 Income Statement Income Statement (P&L Statement) Compares income against expenses over a certain period of time to show companys profit or loss
Calculation Procedure: + Revenue (sales, etc.) - Cost (of goods sold) = Gross Profit - Operating & other expenses = Net Income (profit or loss) 3 Example: Income Statement
[For the year ended DECEMBER 31, 2013] Rs. Rs. Revenues: SALES 496,397 Expenses: ADVERTISING 6,300 BANK & CREDIT CARD FEES 144 BOOKKEEPING 3,350 EMPLOYEES 88,000 ENTERTAINMENT 5,550 INSURANCE 750 LEGAL & PROFESSIONAL SERVICES 1,575 LICENSES 632 PRINTING, POSTAGE & STATIONERY 320 EQUIPMENT RENTAL 3,000 RENTAL 74,400 UTILITIES 491 TOTAL EXPENSES (194,512) NET INCOME 301,885 4 Balance Sheet Balance Sheet A snapshot of a ventures financial position An estimate of a ventures worth on a given date Based on the following accounting equation: Assets = Liabilities + Equity Assets Current (cash, accounts receivable, inventory) Long-Term (tangible, intangible) Liabilities: Current, Long-Term Equity: Value of Owners Investment
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Example: Balance Sheet
6 Cash Flow The most important asset of a small business Business venture must have cash it needs in time to operate otherwise bankruptcy! Cash Flow Cycle Time lag between paying suppliers for merchandise or materials and receiving payment from customers A measure of a companys liquidity and its ability to pay bills and financial obligations on time Cash Management Forecasting, collecting, disbursing, and investing the cash that a company needs in order to operate smoothly
7 Cash Flow Cycle 8 Cash Production/Cash Purchases Accounts Payable Inventory Cash Sales Accounts Receivable Cash burn! The Big 3 in Cash Flow Accounts Receivable Biggest source of delays in cash flow Paperwork must be completed Policies must be clearly explained Accounts Payable Verify invoices/bills Look for favorable terms Use of credit cards? Inventory Surplus implies loss of cash Quick turnover is good