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Financials: Creating Projections

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An overview of financial statements, how they are compiled, and how projections are prepared.

An overview of financial statements, how they are compiled, and how projections are prepared.

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Financials: Creating Projections Financials: Creating Projections Presentation Transcript

  • Creating/Understanding Financial Statements Elia Freedman http://mobilesuccess.infinitysw.com
  • Overview
    • Three core components
      • Income Statement (Profit and Loss)
      • Balance Sheet
      • Cash Flow Statement
    • Constructing Financials
  • Income Statement (IS)
    • Measures company performance over a time period
    • Includes Income and Expenses
    • Answers…
      • Am I making money?
      • How are resources managed?
  • Income Statement Sample Period From XXX to YYY ($ in thousands) $1,500 Research and Development $600 General and Administrative $1,900 Sales and Marketing Operating Expenses $480 Net Income $320 Other Expense $10 Other Income $800 EBITDA $4,000 Total Operating Expenses $4,800 Gross Margin $200 Cost of Goods Sold $5,000 Net Revenue
  • IS: Net Revenue
    • Revenue recognized when goods are shipped or payment received
    • Net Revenue equals
      • Gross Revenue
      • – Returns and Allowances
      • – Bad Debts
      • – Discounts
  • IS: Cost of Goods Sold (COGS)
    • COGS relate to revenues: the goods sold during that period
    • COGS equals
      • Retailers/Wholesalers: price paid for goods sold
      • Manufacturers: cost to manufacture goods
      • Service/Professional Companies: none
      • Web services/Software download: none
  • IS: Operating Expenses
    • Operating Expenses equals
      • Expenses from Sales/Marketing (S/M)
      • Expenses from Research/Development (R/D)
      • Expenses from General/Administrative (G/A)
    • S/M: costs to sell and market
    • R/D: costs to create
    • G/A: other costs (overhead)
  • IS: Other Income/Expenses
    • Other Income
      • Income from outside of normal business
      • Examples: interest income, dividend income, capital gains
    • Other Expenses
      • Expenses from outside normal business
      • Examples: unexpected losses (write-downs), interest payments, taxes
  • Balance Sheet (BS)
    • Snapshot of company at a point in time
    • Includes Assets, Liabilities, Owner’s Equity
    • Answers:
      • What are my assets?
      • Which assets are cash or nearly cash?
      • How much of the assets are owned by debtors (liabilities) v. (owner’s) equity holders?
      • What liabilities are due soon?
    • ASSETS MUST EQUAL LIABILITIES + OWNER’S EQUITY
  • Balance Sheet Sample $6,550 Total Liabilities + Owner’s Equity As Of XXX ($ in thousands) $6,550 Total Assets $50 Long-Term Assets $250 Inventory $3,300 Owner’s Equity $1,750 Long-Term Debt $1,500 Payables Liabilities + Owner’s Equity $1,250 Receivables $5,000 Cash Assets
  • BS: Assets
    • Assets have the ability to generate cash
    • Cash: actual cash on hand
    • Receivables: cash due to you for previous period sales
    • Inventory: inventory on-hand
    • Depreciable Assets: assets that are being depreciated (equipment, servers, etc.)
  • BS: Liabilities
    • Liabilities are debt claims against assets
    • Payables: cash owed to others near-term
      • Accounts Payable
      • Payroll Taxes Payable
      • Taxes Payable
    • Long-Term Debt: loan amounts outstanding
  • BS: Owner’s Equity
    • O.E. is owner’s interest in the assets
    • Owner’s Equity equals
      • Begin Retained Earnings
      • + Net Income: from the income statement
      • – Dividends: paid during the period
      • = End Retained Earnings
      • + Capital Stock: from previous periods
      • + Paid-In Capital: new capital sold
  • Cash Flows (CF)
    • Tracks cash changes from one period to another (CASH IS KING!)
    • Includes cash from operations, investment and financing
    • Answers:
      • Where did cash come from?
      • Where did cash go?
  • Cash Flow Sample Operations ($1,200) Inventory ($50) Depreciation ($2,300) Payables $5,000 Ending Cash Period From XXX to YYY ($ in thousands) $300 Cash from Operations ($1,750) Long-Term Debt $0 Cash from Investing $200 Cash from Financing $800 Receivables $4,800 Net Income $4,500 Beginning Cash
  • CF: Operations
    • Cash from operating the business
    • Calculate difference in each account
      • (Current Period – Last Period)
    • Calculate Cash Flow from Operations
      • Net Income
      • – Asset Accounts (excluding cash)
      • + Liability Accounts
  • CF: Financing
    • Cash from debt, equity and dividends
      • Add inflows of cash
      • Subtract outflows of cash
    • Examples:
      • Borrow or payback money
      • Issue or buy company stock
      • Pay dividends
  • CF: Investing
    • Cash from buying, selling or paying for assets
      • Add inflows of cash
      • Subtract outflows of cash
    • Examples
      • Sell or buy equipment, land or buildings
      • Lend money, receive loan payments
      • Buy, sell cash equivalents
  • Tying It All Together Income Statement Net Income Cash Flows Beg Cash Net Income Operations End Cash Balance Sheet Cash Assets Liabilities Owner’s Equity
  • Building the Projections
  • Assumptions $100 $500 $100 $40 $2,000 $.30 Dollars … Employee Taxes , % gross pay Entertainment , per employee/month Travel , per employee/month Telephones , per employees/month Web site , per month x customers Rents , per month x employees Support personnel , 1 per Credit card fees 2.5% 10,000 11% 11 7,500 % Units
  • Payroll Q1…Q20 Mnth 1 M2… Total Headcount Total Net Payroll Taxes and Benefits Total Gross Payroll General & Administrative Research & Development Director, Marcom VP Sales and Marketing Sales and Marketing Y1…Y5 M60
  • Non-Payroll Expenses Q1…Q20 Mnth 1 M2… Total Web Site Telephone General & Administrative Research & Development Professional Fees Travel Advertising Sales and Marketing Y1…Y5 M60
  • Revenue
    • Assumptions
      • Pricing
      • Market Data
      • Adoption
    • Revenue Projections
      • Same layout as expense projections
  • Financials Q1…Q20 Mnth 1 M2… Balance Sheet Cash Flow Statement Income Statement Y1…Y5 M60
  • Questions/Next Session/Contact
    • Elia Freedman
    • http://mobilesuccess.infinitysw.com