Financial Statements. MIT Global Startup Labs Peru 2018

Transcription

1 Financial Statements MIT Global Startup Labs Peru 2018

2 Today s Agenda Purpose to learn financials Financial Statement Balance Sheet Income Statement Cash Flow Statement Debt vs Equity

3 Why do you need to know financials? What s the most important role of CEO?

4 Why do you need to know financials? What s the most important role of CEO? Survive!!! - maintain oxygen supply -

5 Why do you need to know financials? What s the most important role of CEO? Survive!!! - maintain oxygen supply - Financials help you... - to understand your company s financial situation - to see how much money you need - to raise fund from debt or equity - to set goals and check, etc.

6 What information do stakeholders want? What does the company own? Balance Sheet - Assets How much does the company owe? Balance Sheet - Liabilities How much capital have shareholders invested? Balance Sheet - Contributed Capital How did the company perform? Income Statement - Net Income

7 Financial Statement 1. Balance Sheet 2. Income Statement (Profit & Loss Report) 3. Cash Flow Statement 4. Statement of Shareholders Equity

8 Financial Statements 1. Balance Sheet 2. Income Statement (Profit & Loss Report) 3. Cash Flow Statement 4. Statement of Shareholders Equity

9 Balance Sheet & Income Statement

10 Balance Sheet & Income Statement Balance Sheet Snapshot of the company s financial position as of a GIVEN point in time Revenue Cost Gross Profit Net Income

11 Balance Sheet & Income Statement Balance Sheet Snapshot of the company s financial position as of a GIVEN point in time Income Statement Performance Report of the company s revenue and expense DURING a particular period of time Assets Liabilities Shareholders Equity Revenue Cost Gross Profit Net Income

12 Cash Flow Statement Record of changes in CASH It s about cash generated and used during a particular period time Operating Activities Investing Activities Financing Activities

13 Financial Statement 1. Balance Sheet 2. Income Statement (Profit & Loss Report) 3. Cash Flow Statement 4. Statement of Shareholders Equity

14 Balance Sheet Assets Liabilities Shareholders Equity

15 Balance Sheet Left side Assets How to use fund Liabilities Shareholders Equity

16 Balance Sheet - Assets Assets Cash Account Receivable Inventory House Car Land Factory

17 Balance Sheet Right side Assets Liabilities Shareholders Equity How to get fund

18 Balance Sheet - Liabilities Accounts payable Short term Debt Long term Debt Liabilities

19 Balance Sheet Shareholders Equity Contributed Capital Retained Earnings Shareholders Equity

20 Balance Sheet Assets How to use fund Liabilities Shareholders Equity How to get fund

21 Balance Sheet Assets Liabilities Shareholders Equity Assets = Liabilities + Shareholders Equity

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24 Example 1 Yachaqay lab borrowed money 30,000 soles from a bank and bought furniture for its new school The furniture costs 25,000 soles. They pay 20,000 soles now and agree to pay the remaining balance six months later What does Yachaqay lab s Balance Sheet as of now look like? How about six months later?

25 Financial Statement 1. Balance Sheet 2. Income Statement (Profit & Loss Report) 3. Cash Flow Statement 4. Statement of Shareholders Equity

26 Income Statement Revenues Expenses = Net Income Revenues: Typically cash (or claims-to-cash) that are earned through the selling of goods or services Expenses: The outflows of cash (or claims-to-cash) that are incurred to generate revenues

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28 Link the B/S and I/S Shareholders equity on balance sheet reflects: (a) Contributed capital and (b) Retained earnings Retained earnings changes as follows: End. Ret. Earn. = Beg. Ret. Earn. + Net income Dividend* *Dividend: Distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

29 Link the B/S and I/S Recognizing revenues and expenses affect net income Revenues ultimately increase retained earnings Expenses ultimately decrease retained earnings

30 Link the B/S and I/S Assets Liabilities Shareholders Equity

31 Link the B/S and I/S Assets Liabilities Shareholders Equity

32 Link the B/S and I/S Assets Liabilities Shareholders Equity Revenues

33 Link the B/S and I/S Assets Revenues Liabilities Shareholders Equity Expenses

34 Link the B/S and I/S Assets Revenues Liabilities Shareholders Equity Expenses Profit

35 Link the B/S and I/S Assets Revenues Liabilities Shareholders Equity LiabilitiesRetained Earnings Profit

36 Link the B/S and I/S Income Statement Revenues Expenses = Net Income Balance Sheet Assets = Liabilities + Shareholders Equity

37 Link the B/S and I/S Income Statement Revenues Expenses = Net Income Balance Sheet Assets = Liabilities + Shareholders Equity Contributed Capital + Retained Earnings

38 Link the B/S and I/S Income Statement Revenues Expenses = Net Income Balance Sheet Assets = Liabilities + Shareholders Equity Contributed Capital + Retained Earnings

39 Link the B/S and I/S Income Statement Revenues Expenses = Net Income Balance Sheet Assets = Liabilities + Shareholders Equity Contributed Capital + Retained Earnings Retained Earnings: Profits that a company has earned to date, less any dividends or other distributions paid to investors

40 Principles of Accrual Accounting Revenue Recognition: Earnings process substantially complete (Earned) Cash collection reasonably assured (Collectible) Matching Principle for Expenses: Recognize expenses in same period as associated revenue.

41 Example 1 Pikalo successfully launched its app An user joined Pikalo s subscription program today He paid 30 soles for a monthly subscription fee The data is available from today What does Pikalo s Income Statement look like?

42 Example 2 BUMAL hired 10 local guides at 100 soles each for today Through its website, BUMAL sold 8 tours with guides to customers at 150 soles per tour 2 tours (with guides) haven t been sold yet What does BUMAL s Income Statement look like?

43 Financial Statement 1. Balance Sheet 2. Income Statement (Profit & Loss Report) 3. Cash Flow Statement 4. Statement of Shareholders Equity

44 Cash Flow Statement Cash Flow is different from Profit!!! It s all about CASH, not about Revenues and Expenses Cash Flow Statement consists of three parts: Operating activities - day-to-day business Investing activities - purchase/selling of PPE, CapEx, etc. Financing activities - issuance/repayment of debt or equity

45 Example 1 Yachaqay lab borrowed money 30,000 soles from a bank and bought furniture for its new school The furniture costs 25,000 soles. They pay 20,000 soles now and agree to pay the remaining balance six months later What does Yachaqay s Cash Flow Statement look like today?

46 Example 2 Pikalo successfully launched its app An user joined Pikalo s subscription program today He paid 30 soles for a monthly subscription fee The data is available from today What does Pikalo s Cash Flow Statement look like?

47 Example 3 BUMAL hired 10 local guides at 100 soles each for today Through its website, BUMAL sold 8 tours with guides to customers at 150 soles per tour 2 tours (with guides) haven t been sold yet What does BUMAL s Cash Flow Statement look like?

48 Please remember

49 Wrap-up Balance Sheet is Snapshot of the company s financial position as of a GIVEN point in time Income Statement is Performance Report of the company s revenue and expense DURING a particular period of time Cash Flow Statement is Record of changes in Cash

50 Wrap-up Balance Sheet is Snapshot of the company s financial position as of a GIVEN point in time Income Statement is Performance Report of the company s revenue and expense DURING a particular period of time Cash Flow Statement is Record of changes in Cash Cash Flow is different from Profit Cash is King

51 How do you get funding for your startup? Liabilities Debt Financing - Bank - High Yield Debt Shareholders Equity How to get fund Quasi-Equity Internal Financing Equity Financing

52 Debt vs Equity Your startup needs money to accelerate your business. - Which financing method do you prefer? Debt? Equity?

53 Debt vs Equity Debt Financing - Be able to keep control over your business - Don t need to share the future profit - Must pay back at some point - Affect your cash flow Equity Financing - Don t need to pay back. More cash available - When you fail, you are not required to pay back - Lose some control over your business - Takes time

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55 Measure the efficiency of your business Profitability - Return on assets (ROA) - Return on equity (ROE) - Net Profit Margin Leverage and liquidity ratios - Debt to asset ratio - Debt to equity ratio - Current ratio Turnover ratios - Collection period - Payables period - Inventory turnover DuPont Analysis ROE = Net Profit Margin x Total Asset Turnover Ratio x Equity Multiplier

56 Question?