140 likes | 325 Vues
Financial Management. A basic guide to creating and analyzing financial statements By: Husain AlQaseer February 1, 2014. What should you know about financial statements?. There are two basic concepts you need to focus on with regards to financial statements:
E N D
Financial Management A basic guide to creating and analyzing financial statements By: Husain AlQaseer February 1, 2014
What should you know about financial statements? • There are two basic concepts you need to focus on with regards to financial statements: • How to create your financial statements: Creating your financial statements helps you record your company’s performance over time. • How to analyze your financial statements: Analyzing your financial statements helps you better understand your company’s dynamics, how to improve it, and how to compare it to other similar businesses
Creating your financial statements • There are three basic statements in a set of financial statements: • Income (profit and loss) statement – shows your revenues and expenses over a period of time • Balance sheet – shows a snapshot of the business as at a specific point in time • Cash flow statement – shows the movement of cash over a period of time
Income statement • An income statement, also known as a profit and loss statement, has two basic sections: • Revenues: Consist of all the income you make from you main operations during a period of time • Expenses: All expenses contributing to creating your revenues during a period of time • Profits = Revenues – Expenses
Income statement All sales from main operations All direct / variable expenses All other / fixed expenses Net Income
Balance sheet • A balance sheet presents a snapshot of the business at a specific point in time • There are three main parts in a balance sheet • Assets: Consist of all assets owned by the business. This will include items such as cash and fixed assets (cars, machines, etc). • Liabilities: All liabilities or debts owed by the business. This will include items such as bank loans • Shareholders’ Equity: This is what the shareholders own in the business. • The basic balance sheet formula is: Assets = Liabilities + Shareholders’ Equity
Balance sheet All assets owned by a business All liabilities owed by a business Shareholder’s equity is what the shareholders own in the business
Cash flow statement • A cash flow statement shows the flow of cash through a business during a period of time • There are three main area of cash movement: • Cash flow from operations: This shows the movement of cash from/to the main operations of a business • Cash flow from investing: This shows the movement of cash from/to investments • Cash flow from financing: This shows the movement of cash from/to the capital of the business
Cash flow statement Cash flow from operations Cash flow from investing Cash flow from financing
Analyzing your financial statements • One of the most important aspects of financial management is using your financial statements to better understand your business • Below are some examples of useful analysis equations: • Net profit margin: This shows you the percentage of your revenues that turn into profits • Debt to assets: This shows you what percentage of your assets is financed by debt • Let’s have a look at the financial statements to better understand how you can analyze your business