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Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
Financial Essentials for Growing Your Business
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Financial Essentials for Growing Your Business

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  1. “ Financial Essentials for Growing Your Business”
  2. Understanding Financial Statements <ul><li>Objectives </li></ul><ul><ul><li>Describe the 3 primary financial statements and what they mean to a business </li></ul></ul><ul><ul><li>Introduce ratios & proportions </li></ul></ul><ul><ul><li>How to get better productivity from your expenses </li></ul></ul>
  3. Understanding Financial Statements <ul><li>3 Basic Financial Statements </li></ul><ul><li>1. The Balance Sheet </li></ul><ul><li>2. The Income Statement </li></ul><ul><li>3. The Cash Flow Statement </li></ul>
  4. Understanding Financial Statements Balance Sheet
  5. Understanding Financial Statements
  6. Understanding Financial Statements
  7. Understanding Financial Statements
  8. Understanding Financial Statements <ul><li>Ratios </li></ul><ul><ul><li>Liquidity Ratios – measure the amount of cash available to cover expenses current and long term </li></ul></ul><ul><ul><li>Current Ratio – should be 2 x or 200% of current liabilities </li></ul></ul><ul><ul><li>Quick Ratio = cash + A/R </li></ul></ul><ul><ul><li>Current Liab. (B/S & IS) </li></ul></ul><ul><ul><li>Turnover of Cash Ratio – or working capital, if maintained at adequate levels this is what can finance sales </li></ul></ul><ul><ul><li>Sales should be 5 or 6 times working capital </li></ul></ul><ul><ul><li>Turnover of Cash Ratio = Net Sales </li></ul></ul><ul><ul><li>Working Capital ( B/S & IS) </li></ul></ul><ul><ul><li> </li></ul></ul>
  9. <ul><ul><li>Debt to Equity Ratio – the relationship between capital contributed by creditors (banks) that loan cash and owners equity remaining in the business </li></ul></ul><ul><ul><ul><li>CL to net worth should not exceed 80% & LT debt should not exceed 50% or creditors may want to have a say in how the business is operated or an ownership interest </li></ul></ul></ul><ul><ul><ul><li>Debt to Equity Ratio = Total Debt </li></ul></ul></ul><ul><ul><ul><li>Equity </li></ul></ul></ul>Understanding Financial Statements
  10. <ul><li>Summary </li></ul><ul><li>Liquidity ratios – ability to pay debts </li></ul><ul><li>Current ratios – ability to pay immediate bills </li></ul><ul><li>Working capitol – difference between CA and CL </li></ul><ul><li>Total LT debt should not exceed 45% of NW </li></ul>Understanding Financial Statements
  11. <ul><li>Rate of Return on Sales Ratio </li></ul><ul><ul><li>Operating income/Net profit – indicates if sales can cover cost and leave an acceptable profit </li></ul></ul><ul><ul><li>Rate of Return on Sales Ratio = Operating Income </li></ul></ul><ul><ul><li>Net Sales </li></ul></ul><ul><li>Rate of Return on Assets Ratio (ROA) </li></ul><ul><ul><li>Income/Profit - generated by the assets </li></ul></ul><ul><ul><li>ROA = Income Before Taxes </li></ul></ul><ul><ul><li>Total Assets </li></ul></ul><ul><li>Rate of Return on Investments (ROI) </li></ul><ul><ul><li>Used to determine whether or not to invest in a company </li></ul></ul><ul><ul><li>ROI = Income Before Taxes </li></ul></ul><ul><ul><li>Net Worth </li></ul></ul>Understanding Financial Statements
  12. <ul><li>Summary of Profitability Ratios </li></ul><ul><li>Profitability ratios - measure return on sales, return on assets and return on investments </li></ul><ul><li>Profitability – your price structure, sales, and controlling expenses. </li></ul><ul><li>Ratios- used to compare with industry average </li></ul><ul><li>ROI- may be compared as RONW to total assets </li></ul>Understanding Financial Statements
  13. <ul><li>How to get better productivity from your expenses </li></ul><ul><ul><li>Understand Sales – why made or not made </li></ul></ul><ul><ul><li>Understand COGS – increase or decrease % of net sales </li></ul></ul><ul><ul><li>Credit & Collections – reduce time (commitment of cash & collection of cash) </li></ul></ul><ul><ul><li>Fixed Expenses – occurs if sales made or not </li></ul></ul><ul><ul><li>Variable Expenses – Tied to sales volume </li></ul></ul>Understanding Financial Statements

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