Kurtis Hanni

Kurtis Hanni

10-10-2022

12:09

I’ve built my career analyzing & simplifying Financial Statements for business owners. Let me break them down for you:

Each company has 3 financial statements and they answer different questions: 1. Income Statement: Are you profitable? 2. Balance Sheet: Are you healthy? 3. Statement of Cash Flows: Where is cash going?

1. Income Statement This answers whether or not you’ve made a profit over a given period of time. The formula: Revenue - Expenses = Profit

Expenses are broken into: • Cost of Goods Sold • Operating Expenses • Non-Operating Expenses These categorizations help you understand how the business runs.

Cost of Goods Sold = costs directly related to revenue Operating Expenses = costs required to run the business, but not directly-related to revenue These would include: • Facilities • Sales & Marketing • General & Administrative

The income statement helps you: • Identify revenue & the trends • Understand your product costs • Itemize your fixed or overhead costs • Know if you made a profit

2. Balance Sheet This answers a company’s financial strength at a specific snapshot in time. The Formula: Assets = Liabilities + Equity OR Assets - Liabilities = Equity

Assets tell you what you own: • Cash • Accounts Receivable (money owed to you) • Inventory (product in your possession but not sold) • Fixed Assets (property, equipment, machinery, or vehicles) • Intangible Assets (software, licenses, trademarks, or goodwill)

Liabilities tell you what you owe: • Current Liabilities (owed in less than a year) ▸ Accounts Payable (money owed to vendors) ▸ Short-term debt (obligations to pay) • Long-term liabilities (owed in more than a year)

Equity is how much the company is worth on paper: • Money put in (contributions) • Money taken out (dividends) • Earnings retained (profit left in)

From the balance sheet you learn: • The financial strength • Whether you can pay the bills • How much debt the company has • The book value of the company

3. Statement of Cash Flows This answers how cash has been spent over a period of time. The formula: Net Increase/Decrease of cash during period+ Cash at beginning of period = Cash at end of period

The net increase/decrease is broken down into 3 categories: • Operating Activities (changes related to day-to-day biz) • Investing Activities (purchase or sale of assets) • Financing Activities (changes in debt and capital structure)

When analyzing this statement, you are asking: • is your cash flow positive or negative? • why your cash flow is positive or negative? • is operations supporting the business?

Today, I wanted to lay the foundation. This week, I’m going to break each statement: • Why they matter • How to read them • What metrics to use Follow me so you don’t miss the rest of the series: @KurtisHanni

Want a deeper dive? Join my cohort where I teach how to: • Read Financial Statements • Create KPIs & manage cash flow • Making numbers-based decisions We start next week:

If you want to learn but aren’t ready (or able to make the investment), join my newsletter. Each week I break down one financial concept to educate and get you thinking differently about your numbers. Join 6k others:



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