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Financial Intelligence for entrepreneurs - Coggle Diagram
Financial Intelligence for entrepreneurs
Basics
Capex/Opex
Capex -> Are spread over their useful term this is pretty much depreciation
Opex -> Are taken out of revenue immediatelly
There are fine lines, in the art of finance on what is written off as what.
Income Statement
Time series statement of revenue, cost and profit.
Profit is a speculative number
Deprecation and Amortization are the same things, except the former relates to tangible assets, while the latter to intangible assets.
Balance Sheet
Assets - Liabilities = Equity
Own & Owe = Equal Each Other
Cash Flow Statement
Ratios
Profitability Ratios
Gross Margin, Operating Profit Margin, Net Profit Margin, Return on Assets (Can be too high, means old equipment potentially), Return on Equity
Leverage Ratios
Debt to Equity, Interest Coverage (Operating Profit/Annual Interest Charges)
Companies use leases to circumvent 'debt' on their sheets.
Liquidity Ratios
Current Ratio (Assets/Liabilities), Quick Ratio same as before just without Inventory.
Efficiency Ratios
Days In Inventory, Inventory Turns, Days Sales Outstanding, Days Payable Outstanding, PPE Turnover
Accounting should always be accrual.
Companies mess with revenue recognition to artificially inflate their revenue numbers.
Free Cash Flow = Operating Cash - Investment Cash, this is the best metric for business performance.
ROI
Present Value
Future Value
Pretty much guessing how much an investment might be worth in the future, the longer the time period the more complex. A lot of guesswork.
Expected Rate of Return
Cost of Capital Calculation -> How much Return an investment must make to make sense for the shareholders.
Defining the Capital Expense, Projecting the Future Cash flow of Investment, Estimating if it makes sense using IRR and other methodology.
Capital Deployment Management -> DOP, DOR, Inventory Management.
Cash Life Cycle