The document discusses the three core financial statements used to understand a company's financial performance and position. The income statement measures profits and losses over a period of time. The balance sheet provides a snapshot of assets, liabilities, and owner's equity at a point in time. The cash flow statement tracks cash changes from one period to the next. Key components of each statement are outlined, including revenue, expenses, assets, liabilities, and cash flows from operations, investing, and financing activities. Building financial projections involves making assumptions for items like headcount, expenses, revenue, and presenting the projections across time periods in an organized format similar to the core financial statements.

1. Creating/Understanding Financial Statements Elia Freedman http://mobilesuccess.infinitysw.com

2. Overview Three core components Income Statement (Profit and Loss) Balance Sheet Cash Flow Statement Constructing Financials

3. Income Statement (IS) Measures company performance over a time period Includes Income and Expenses Answers… Am I making money? How are resources managed?

4. 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

5. IS: Net Revenue Revenue recognized when goods are shipped or payment received Net Revenue equals Gross Revenue – Returns and Allowances – Bad Debts – Discounts

6. 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

7. 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)

8. 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

9. 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

10. 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

11. 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.)

12. 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

13. 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

14. 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?

15. 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

16. 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

17. 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

18. 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

19. 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

20. Building the Projections

21. 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

22. 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

23. 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

24. Revenue Assumptions Pricing Market Data Adoption Revenue Projections Same layout as expense projections

25. Financials Q1…Q20 Mnth 1 M2… Balance Sheet Cash Flow Statement Income Statement Y1…Y5 M60

26. Questions/Next Session/Contact Elia Freedman http://mobilesuccess.infinitysw.com