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Understanding Financial Information


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A quick description on how to read and understand financial statements.

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Understanding Financial Information

  1. 1. Understanding Financial Information<br />
  2. 2. Need not be Scared<br />We all should have a foundation in understanding finances<br />Allows you to be proactive rather than reactive<br />Relevant for almost everyone:<br />Business Owners<br />Project Managers<br />Professionals (Attorneys, Accountants, Consultants, etc.)<br />Running a Political Campaign<br />
  3. 3. Understanding Financial Information<br />Terminology<br /><ul><li>Filling up your toolbox
  4. 4. Planning Tools
  5. 5. Reporting Tools
  6. 6. Analyzing Tools
  7. 7. Implementation Tools</li></li></ul><li>Terminology<br />Balance Sheet<br />Income Statement<br />Cash Flow<br />Liquidity<br />Margin<br />ROI (Return on Investment)<br />
  8. 8. Balance Sheet<br />Section-1: Assets<br />What do you possess of value (cash, receivables, fixed assets, etc.)<br />Section-2: Liabilities<br />What do you owe (payables, loans, etc.)<br />Section-3: Equity<br />Owner’s activities<br />Historic performance<br />Assets = Liabilities + Equity<br />
  9. 9.
  10. 10. Income Statement<br />Section-1: Revenues<br />Tracking monies flowing in<br />Section-2: Expenses<br />Tracking monies flowing out<br />Section-3: Net Income<br />Revenues less Expenses<br />Positive is GOOD<br />Negative is not so good<br />
  11. 11.
  12. 12. Cash Flow<br />Section-1: Inflows<br />Understanding expected cash coming in<br />Section-2: Outflows<br />Understanding expected cash going out<br />Section-3: Net Cash<br />Inflows less Outflows<br />Positive is GOOD<br />Negative is not so good<br />
  13. 13.
  14. 14. Liquidity<br />How much cash do you have?<br />What can be converted to cash quickly?<br /><ul><li>How many days of cash on hand do you have (if no revenues are coming in, how long can you operate for)?</li></li></ul><li>Margin<br />Measuring Profitability. <br />If you have a billing rate of $200 per hour, you are not keeping $200 per hour in your pocket. <br />If you are selling a product for $50, you have inventory costs, shipping costs, etc.<br />
  15. 15. ROI<br />Return on Investment<br />Always know what every dollar spent is worth to your bottom line<br />Be able to answer questions such as:<br />What did spending $10k in advertising do to my revenues?<br />What did adding a sales person do to my revenues?<br />What was the bottom line effect on spending $50k on automation?<br />How did spending $25k in PR increase my visibility?<br />
  16. 16. Running a Successful Business<br />Retail, Law Firms, Consulting, Political Campaigns – They are all businesses<br />4 Simple Steps:<br />PLAN<br />REPORT<br />ANALYZE<br />IMPLEMENT<br />
  17. 17. Planning<br />Before a single dollar is spent on an idea, develop a business plan and strategic plan. Focus your thoughts and validate your vision.<br />Planning includes budgeting and cash forecasting.<br />
  18. 18. Reporting<br />Produce financial statements on business activities<br />Balance Sheet<br />Income Statement<br />Statement of Cash Flows<br />Produce relevant reports on your business:<br />Page views and sales conversion rates for internet businesses<br />Velocity reports for inventory based businesses<br />Billable hour details for professional services<br />
  19. 19. Analyzing<br />What are your reports telling you?<br />What are your margins?<br />Assess ROI for monies spent.<br />
  20. 20. Implementing<br />What needs to change based on your analysis?<br />Always be proactive, but react to what your reports are telling you.<br />
  21. 21. Understanding Financial Information<br />Q&A<br />