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Basic Financials 101 By Tom Shay
 

Basic Financials 101 By Tom Shay

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Tom Shay's presentation on understanding the various parts of a profit and loss statement and balance sheet. www.profitsplus.org

Tom Shay's presentation on understanding the various parts of a profit and loss statement and balance sheet. www.profitsplus.org

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    Basic Financials 101 By Tom Shay Basic Financials 101 By Tom Shay Presentation Transcript

    • Tom Shay, CSP Certified Speaking Professional
    • www.profitsplus.org 1. P & L Statement or Income Statement
    • 1. Profit & Loss Statement or Income Statement
      • Usually created on a monthly basis.
      • Some businesses have 13 months in their year.
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    • 2. Revenues vs. expenses
      • Revenues are all of the sources of income.
      • Expenses are all of the dollars spent by your business.
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    • 3. Cost of Goods Sold vs. Cost of Doing Business
      • Beginning inventory + Inventory purchased – Ending inventory.
      • Refers to the business as a whole – not a single transaction.
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    • 3. Cost of Goods Sold vs. Cost of Doing Business
      • Cost of Goods Sold is usually for businesses that sell products.
      • Cost of Doing Business is usually for businesses that sell services.
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    • #4 Gross Margin vs. Gross Profit
      • Gross margin is a percentage.
      • Gross profit is a dollar amount.
      • Calculated as the revenue minus the cost of the item, divided by the revenue.
      • Often refers to a single item or service.
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    • 4. Gross margin is not Gross markup
      • Gross margin – cost as a percentage of selling price.
      • Gross markup – selling price as a percentage of cost.
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    • 4. Gross margin is not Gross markup
      • Margin is 50%
        • Cost is $2.00
        • Selling price is $4.00
      • Markup is 100%
        • Cost is $2.00
        • Selling price is $4.00
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    • 5. Maintained Gross Margin
      • The margin on the products and services – calculated after any markdowns or discounts.
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    • 6. Gross Profit vs. Net Profit
      • Gross Profit – Price you sell it for minus the cost of the item.
      • Net Profit – Gross Profit minus all of the expenses.
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    • 7. Cash Basis vs. Accrual Basis Accounting
      • Cash basis – at the end of the month, all expenses paid and all receivables collected.
      • Accrual Basis – Revenues and expenses that you decide are reported over several months.
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    • www.profitsplus.org 8. Balance Sheet
    • 9. Assets vs. Liabilities
      • Assets – The dollar amount of things, tangible and intangible that you own and have a positive value.
      • Liabilities – The dollar amount for things, tangible and intangible that you owe.
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    • 10. Accounts Receivable
      • Money owed to your business for products, services and equipment sold to others.
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    • 11. Accounts Payable
      • Money that you owe to others for inventory, services, and equipment.
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    • 12. Current vs. Long Term
      • How items on your balance sheet are categorized.
      • Everything that will be, or can be converted to cash within one year is current. Bills paid within one year are current liabilities.
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    • 12. Current vs. Long Term
      • Everything that would take longer than one year, or is unlikely to be converted to cash is considered long term. Bills paid after 12 months are long term liabilities.
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    • 13. Current Income vs. Retained Earnings
      • Current Income – Profit for the just completed accounting period.
      • Retained Earnings – Profit that has not been paid out.
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    • 13. Current Income vs. Retained Earnings www.profitsplus.org
      • Adding up the profits
      • Contributed capital + Current income
      • + Retained Earnings
      • Stockholder equity
    • 13. Current Income vs. Retained Earnings
      • Just because the profit and loss statement says there is Income/Earnings, does not mean this is how much money is in the checking account to take out!
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    • 14. Net Worth
      • From the balance sheet, net worth is what you have after you subtract total liabilities from total assets.
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    • 15. Equity
      • In many businesses, another way of stating the net worth of a business; It is how much financial value you have in the business.
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    • 16. Book Value
      • Determines the value of a piece of equipment.
      • Initial cost minus depreciation.
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    • 17. Depreciation
      • A systematic calculation to take a piece of equipment from what you paid for it to a lower value.
      • This is an expense on your profit & loss/income statement.
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    • 17. Depreciation
      • The number of years it takes to depreciate something varies from item to item.
      • Faster depreciation causes a business to report profit later.
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    • 18. Fair Market Value
      • As compared to the “depreciated value”, this is the dollar amount you could get by selling the asset.
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    • 19. Budget
      • A profit and loss statement (income statement) written as a projection of what you expect to happen.
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    • 20. Cashflow
      • A budget that takes into consideration cash and any transaction involving cash.
      • The #1 management tool!
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    • 21. Sales Per Square Foot
      • Total annual sales ÷ total square footage occupied.
      • This number does not appear on either financial statement, but is crucial to a retail operation.
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    • 22. Average Ticket
      • Total annual sales ÷ total number of sales in year.
      • Also does not appear on either financial statement but is an important measure of any business.
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    • 23. Other financial questions, terms, ratios?
      • Debt to net worth, acid ratio, days sales outstanding, debt to equity ratio, return on equity, return on assets, accounts receivable turnover, accounts receivable aging, days of inventory on hand.
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    • www.profitsplus.org
      • Visit our website to use the small business knowledge test and the small business financial knowledge test.
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    • Crisis Management - Spending more than 15% of your day solving problems that did not exist when you started your day. www.profitsplus.org
    • Final Note www.profitsplus.org
      • This presentation will be specialized to your industry and your attendees’ specific needs.
      • For more information about having Tom present for you, contact us at (727)464-2182 or visit our website: www.profitsplus.org