Analyzing financial statements is not why you started the business! But, learning to read and affect your balance sheet and profit and loss (P&L) statements will result in better and more profitable decision making.

1. Sigma Free
Presents…
Follow the Money
Find the Value in Knowing Your Financials
Provided by Sigma College of Small Business, Inc.

2. Agenda
Introductions
Keynote Topic
Follow the Money
Find the Value in Knowing Your Financials
Break – Refreshments and Networking
Ask Keynote Conclusion
Questions Follow the Money
Any Time Find the Value in Knowing Your Financials
Follow the Money – Find the Value in Knowing Your Financials 2
Copyright 2010 Sigma College of Small Business, Inc.

3. Financial Statements
Not Just for Banks and Accountants
• Banks
– Evaluate “health” of the business
– Ability to pay back loans
• Business Owners
– Evaluate performance
– Improve the “health” of the business
– Improve ability to pay back loans
– Make sound financial decisions
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.
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4. Key Financial Statements
Summary of transactions over a period
Financial Position at a Financial Position at a
of time that accounts for differences
specific point in time specific point in time
between balance sheets
Balance Sheet Balance Sheet
12/31/2007 2008 12/31/2008
Profit and Loss Statement
2008
Statement of Cash Flows
2008
Statement of Owner Equity
Account Balance: How did the balance go Account Balance:
$1,000 from $1,000 to $2,000 $2,000
Follow the Money – Find the Value in Knowing Your Financials 4
Copyright 2010 Sigma College of Small Business, Inc.

5. Balance Sheet
Assets Liabilities
OWNED OWED
Current Liabilities
Current Assets To be paid within12 months
Quickly convertible to cash (loan payments for year, accounts
(bank accounts, accounts payable, payroll liabilities)
receivable, inventory)
Long Term Liabilities
Due beyond 12 months
Fixed Assets (Long term loans)
Not quickly convertible to
cash
(equipment, facilities)
Owner Equity
Assets ‐ Liabilities
Owner’s Equity = Assets ‐ Liabilities
Follow the Money – Find the Value in Knowing Your Financials 5
Copyright 2010 Sigma College of Small Business, Inc.

6. Widgets, Inc.
Balance Sheet Assessment
Balance Sheet is a
“Snap Shot” in time
Total Assets = Analyze “trends”
Total Liabilities + for changing
Owners Equity financial positions
Follow the Money – Find the Value in Knowing Your Financials 6
Copyright 2010 Sigma College of Small Business, Inc.

7. Profit and Loss Statement
aka The Income Statement
Gross Revenue Revenues Gross Margin
Total amount brought in from Amount left over after the
operations “Cost of Goods Sold” (COGS)
aka Sales, Gross Sales, Net Sales aka Gross Profit, Margin
Expenses
“Operating” Expenses Interest, Taxes and
Paid for selling and delivery Ammortization
(payroll, marketing, administration) Not “operational”
Net Income
Revenues ‐ Expenses
Follow the Money – Find the Value in Knowing Your Financials 7
Copyright 2010 Sigma College of Small Business, Inc.

8. Widgets, Inc.
Profit and Loss Statement
Income Statement
tracks across a time
Operational period
Earnings
Analyze “trends”
for changing
operations
Impact of Financial
Decisions
Follow the Money – Find the Value in Knowing Your Financials 8
Copyright 2010 Sigma College of Small Business, Inc.

9. Sigma Free
Presents…
Follow the Money
Find the Value in Knowing Your Financials
Provided by Sigma College of Small Business, Inc.

10. Ratio Analysis
Separates comparison from the number magnitude
‐ Compares “apples to apples”
• Liquidity
– Analyze ability to meet current obligations
• Ratio Trend Analysis
– Compare line items with a basis
• Total assets or Gross revenue
• Return on Investment
– Compares result with the assets or investment available
• Inventory
– Evaluate efficiency in which inventory is managed
Follow the Money – Find the Value in Knowing Your Financials 10
Copyright 2010 Sigma College of Small Business, Inc.

11. Widgets, Inc.
Ratio Analysis ‐ Liquidity
• Working Capital
• Current Assets – Current Liabilities
• Current Ratio
• Current Assets / Current Liabilities
• Acid Test or Quick Ratio
• (Current Assets – Inventory) / Current Liabilities
• Actual asset values go up
• Decline in ratios indicate a weaker, more
“leveraged” financial position
• Indicators that company is positioned for growth
• Equipment purchase
• Higher inventory and A/R
Follow the Money – Find the Value in Knowing Your Financials 11
Copyright 2010 Sigma College of Small Business, Inc.

12. Widgets, Inc.
Ratio Analysis
‐ Performance
Decrease in the
relative Gross Margin
Result of increased
leverage
Return on Assets
Net Income / Ave. total Assets
Margin
Net Income / Sales
More assets,
but less income
More efficient – reduced ROI
Turnover
inventory management Sales / Ave. total Assets
Follow the Money – Find the Value in Knowing Your Financials 12
Copyright 2010 Sigma College of Small Business, Inc.

13. Management Statements
• Project and Job Statements
– Compare job revenue to job expenses
– Determine job profitability
• Customer Statements
– Compare long term value of cutomers
– Track customer type to identify your best markets
• Managerial Accounting
– Measure the direct costs of products and process
– Evaluate and assign overhead
– Identify and track improvement efforts
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.
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14. Sigma College of Small Business
• Upcoming SigmaFree Classes Critical Business
– 2/9 – Choosing the Right Advertising Areas
– 2/16 – What’s New? Technology and Strategy and Planning
Innovation for Small Business Marketing and Sales
• Upcoming Sigma College Course Accounting and
Finance
– Marketing and Sales for Small Business
Operations and
• Thursdays, 7:30am‐9:30am, 2/11‐3/4, 4 weeks
Quality
• Wednesdays, 3pm‐5pm, 2/17‐3/10, 4 weeks
Leadership and
– Free personal consult Administration
– “Flex” schedule – attend either class
Technology and
Innovation
Dedicated to the Learning Needs of Small Business!
Copyright 2010 Sigma College of Small Business, Inc.
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