2. Three (3) Financial Statements
The financial statements (FS) show the
financial health of a business
1. Profit and Loss
2. Cash Flow
3. Balance Sheet
3. Profit and Loss Statement
• Summarizes the revenues, costs and
expenses incurred during a specific period
of time (quarterly, fiscal, year)
• Provides information that shows the ability
of a company to generate profit by
increasing revenue and decreasing costs
• Also known as “income statement” or
“income and expense statement”
5. Cash Flow Statement
Cash Flow:
• A revenue or expense stream that changes a
cash account over a given period
• Essential to solvency of a company
Statement of Cash Flow:
• Shows the amount of cash generated and used
in a given period
• Indication of a company’s financial strength
• It helps investors see if a company is having
trouble with cash
6. Cash Flow Statement
Cash Activities (inflows / outflows):
1. Operations
- Depreciation expenses
- Deferred taxes
- Account receivables / Account payables
2. Investing
- Investing of excess cash in different investments (stocks/bonds)
- Buying or selling of subsidiaries
- Acquisition/dispose of physical property such as PPE
3. Financing
- Long term liabilities
- Stockholders’ equity
- Dividend payments
8. Cash Flow Statement
Four (4) steps in managing cash flow
1. Measuring cash flow
- Prepare cash flow projections
- Know when payments, interest earnings, collections and other
sources are going to get in
- Detailed knowledge of amounts and dates of upcoming cash
outlays (rent, inventory, wages, utilities, debt payments)
2. Improving receivables / speed of collection
- Offer discounts who pay bills rapidly
- Ask for deposit payments at the time of order
- Require credit checks on noncash customers
- Track accounts receivables to identify and avoid slow-paying
customers
9. Cash Flow Statement
3. Managing payables
- Take full advantage of creditor payment terms
- Use electronic fund transfer on the last day they are due
- Communicate with your suppliers if you need to delay payments
- Carefully consider vendors’ offers of discounts for earlier
payments
- Don’t always focus on lowest price when choosing suppliers –
consider flexible payment terms
4. Surviving shortfalls
- Be aware of cash shortfalls as early and as accurately as
possible
- Choose the bills you’ll pay carefully (payroll, crucial suppliers)
10. Balance Sheet
• Summarizes a company’s assets, liabilities and
shareholders’ equity at a specific point in time
• A tool to calculate the net worth of a business
(financial ratios)
• The 3 segments give investors an idea as to
what the company owns and owes, as well as
the amount invested by the shareholders
• It is called such because the two sides balance
out
Assets = Liabilities + Shareholders’ Equity
12. Sources
• http://www.investorwords.com
• The Ins and Outs of Cash Flow Statements
http://www.entrepreneur.com/article/178302
• How to better manage your cash flow,
http://www.entrepreneur.com/article/66008
• http://www.investopedia.com
