#+title: Section 6 | Lesson 34 - Balance Sheet, Cash Flow Statement
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4311526#overview][S06:L34 Income Statement, Balance Sheet, Financial Risk]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4311576#overview][S06:L35 Cash Flow Statement]]

* Notes

** tips
- confidence leads to perceived competence, especially in sales
- confidence is king
- in baseball you miss more often, so the best hitters are insanely confident
- when presenting to investors get into the confident state

** financial analysis
- don't focus on memorization
- if you understand you will remember it

*** years 3-4
- growth is accelating
- running out of cash

** copyright and trademarks
  - ™️
    - meaning: brand, logo, or phrase that is claimed but not yet registered with a government trademark office
    - legal: limited protection, intent to claim but not the legal weight of a trademark
  - ©️
    - meaning: creator of a work owns the copyright
    - legal: automatically granted as soon as work is created and fixed in a tangible medium.  symbol serves as a public notice
    - applies to creative works, not brand identifiers
  - ®️
    - meaning: officially registered with a government agency
    - legal: strongest protection for brand, logo or phrase.  allows the owner to sue for damages if someone infringes on the trademar

** balance sheet
*** banks
- you shouldn't deal with banks early on
- you want to deal with multiple banks
  - best deal
  - options

*** terms
- balance sheet: tracks everything you own or owe
- equity: what people own
- debt: what banks own

- assets: what you own
  - current: stuff you can sell in less than one year
    - equipment
  - long term: stuff you can't sell in less than one year
    - factory

- liabilities
  - current
    - stuff you have to pay back in a year
    - credit card
    - payroll

  - long term

** Income Statement
- tells you about your income
  - top line is sales / revenue
  - bottom line is net income

*** Financial Summary

The following is a fictional summary of a the finances of a watch company

**** Gross Profit
| Category       | Quantity | Per Unit | Total  |
|----------------+----------+----------+--------|
| Sales          | 1000     | $300     | $300k  |
| Cost           | 1000     | $200     | -$200k |
| **Gross Profit** |          |          | **$100k** |

**** Earnings Before Interest and Taxes (EBIT)
| Expense Type                 | Amount   |
|------------------------------+----------|
| Marketing expenses           | -$10k    |
| Employee expenses            | -$30k    |
| Rent expense                 | -$17k    |
| Depreciation                 | -$2k     |
| **EBIT**                     | **$41k** |

**** Earnings Before Taxes (EBT)
| Item            | Amount   |
|-----------------+----------|
| Interest        | -$1k     |
| **EBT**         | **$40k** |

**** Net Income
| Item            | Amount   |
|-----------------+----------|
| Taxes (25%)     | -$10k    |
| **Net Income**  | **$30k** |


*** Explanation of the Financial Summary

**** Gross profit
the monty you bring in taking away only the cost of manufacture

**** Earnings Before Interest and Taxes (EBIT) / Operating Profit
   - this is also called "The Line"
   - this composes operating expenses and depreciation
   - depreciation is the wear and tear on your equipment
     - in the US you can deduct that cost
     - this means you can deduct from the use of even a car

** Cash Flow Statement

*** A. Cash Flow From Operation
| Expense Type                      | Pos/Neg | Amount   |
|-----------------------------------+---------+----------|
| NetIncome                         | Pos     | $30k     |
| Increase in Depreciation          | Pos     | $2k      |
| Increase in Accounts Receivable   | Neg     | -$10k    |
| Increase in Accounts Payable      | Neg     | $20k     |
| A = Net cash flow from operations | Pos     | **$42k** |

*** B. Cash Flow From Investing
| Expense Type          | Pos/Neg | Amount    |
|-----------------------+---------+-----------|
| Increase in equipment | Neg     | $40k      |
|                       | Neg     | **-$40k** |

*** C. Cash flow from Financing
| Expense Type                     | Pos/Neg | Amount |
|----------------------------------+---------+--------|
| Increase in Loans                | Pos     | $20k   |
| C = Net cash flow from financing | Pos     | $20k   |

*** Total Net Change in Cash
| Category               | Amount   |
|------------------------+----------|
| A + B + C              | $22k     |
| Beginning Cash Balance | $60k     |
| **Ending Cash Balance** | **$82k** |


What we are determining in this category is ACTUAL CASH
money we can actually use

That's why in some cases, like Depreciation or Loans, we take off on the Income Statement but add it back here.  Or Accounts receivable, which haven't been received, we take off.

**** Depreciation
- it's important to understand that "depreciation" is actually just bullshit meant to help you on your taxes
- you are "detracting" from your earnings what the depreciation should have been worth
- but in reality, you didn't lose anything
- so you have to add it back if you want to know what you really got

**** Accounts Receivable
- listed under 'current assets'
- collection typically occurs within a year
- money owed to a company by its customers for goods or services
- expected to be receives
- we have to deduct that b/c even tho we "should get it" we HAVEN'T got it

**** Accounts Payable
- listed under 'current liabilities'
- payments generally made within a year
- money a company owed to suppliers or venders for goods or services purchased on credit

** Financial Ratios
- understand them
- don't memorize them

*** why do we care
1. so equity investors can decide to invest or assess our performance
2. so lenders can decide to lend / assess loan performance
3. business owners can track performance

*** what matters
- when you get to B round
- otherwise cash burn rate / month
  - friends, family
  - first venture capital firm
- cash flow is REALLY important at the end of the process

*** how to read financial statements
- treat it like a good book
- look for patterns
