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1. Introducing Financial Statements
To understand business, you need to understand financial statements. In this lesson, I introduce you to the Income Statement, the Balance Sheet and the Statement of Cashflows.
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Lesson Goal (00:04)
The goal of this lesson is to learn about the uses of financial statements and learn about the difference between profit and cashflow.
Financial Statements and Their Uses (00:07)
This course introduces three financial statements: the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Understanding financial statements like these is an important skill for anyone looking to advance to senior management positions in most companies.
Financial statements are used to provide information about a company’s performance and financial position to various individuals, such as shareholders or management. They’re used in many common business situations, such as purchasing shares, valuing a company, or making an investment recommendation.
We can analyze past financial statements to understand a company’s past performance, or we can build future projections for the financial statements.
Understanding Profit and Cash Flow (01:49)
Profit is the difference between the amount of revenue earned from a business activity, and the expenses and costs associated with that activity. It is calculated in the Income Statement. Cash flow represents the actual cash we receive and pay for our business activities. Cash flow are included in the Statement of Cash Flows.
Profit and cash flow are not the same. For example, if we provide a service to a customer, but have not yet received the money, we can still declare the revenue we have earned.
Case Study for the Course (02:53)
This course analyzes the financial statements of a company called MarkerCo. MarkerCo provides IT hardware and consulting services to clients. They have relatively straightforward financial statements to analyze.
Welcome to the first course on financial statements in Excel. This course aims to give users a high level overview of the income statement, balance sheet, and statement of cash flows and how to analyze these documents in Excel. In this lesson, we'll learn about the uses of financial statements and learn the difference between profit and cashflow. When you begin your career, you may or may not have encountered financial statements in your day-to-day work, however, as you move up into management, the ability to understand financial statements becomes a huge advantage. Particularly when combined with another discipline, say operations or engineering. If you can't read financial statements, ultimately it can be difficult for you to move into senior management roles within a company. So what role do financial statements play and why do they exist? The role of financial statements is to provide information about a company's performance and financial position to a wide range of individuals, including a company's shareholders, management, lenders and so on. Financial statement analysis often plays a role in a number of important business decisions, including purchasing share of a company in the stock market, evaluating a merger acquisition target, deciding on the valuation of your company when raising capital, evaluating loan or credit requests, assigning a credit rating to a company or making investment recommendations to your clients or team. When reading financial statements, analysts will want to examine the past performance of a company, but also create projections for the future. In this course, we'll focus on analyzing historic financial statements.
When we think about the performance of a company, our minds often jump to profit. Profit is defined as a difference between the amount of revenue earned in a business activity and the expenses, costs and taxes needed to run that business activity. Profit is calculated in the income statement. It's worth noting that profit is not the same as cashflow. If we provide a service or goods to our customer, but have not yet received the money, this is still declared as revenue. This often confuses people at the beginning, but I'll cover this critically important concept in detail during this course. Cash flows in a business are critical because ultimately, Cash is needed to pay employees, suppliers, and to continue on as a going concern, the cash flows of a business are included in the statement of cash flows document. In addition to profit and cashflow, analysts will also want to look at the current financial health of a company. This is done by measuring its resources, such as property or cash against the claims on those resources, for example, loans or creditors, the current financial health of a business is found in the balance sheet. To help us understand financial statements. We're going to use a fictional company, Marker Co, that provides IT, hardware and consulting services to its clients. Marker co is a small business with relatively straightforward financial statements for us to analyze.
We'll begin in the next lesson by reviewing Marker Co's income statement.