accounting and finance.pdf
TRANSCRIPT
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Accounting, Financeand Financial Modeling
Tallahassee Presentation
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The Company ProcessThe Make-up of Financial
Transactions Development & productization
Marketing
Production
Sales
Investment and bank & other loans
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The Accounting Process
Revenue from sales
(Direct expenses of sales -COGS) Gross profit
( Overhead expenses) R&D Marketing and sales Accounting
Sue Pre-tax Profit (Tax) Net income
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Some Accounting Anomalies
Accrual accounting Cash accounting
An aside about cash Cash is King
With it you may survive; without it you will
die
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The Accounting Format
Income statement An overview over time of the health of the
business
Balance sheet
A snapshot of the state of the business
Cash flow statement Converts from accrual to cash
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Financial Modeling
What is it? Simply stated, a math model of the business
that projects the future performance and
health of the business What are the benefits of financial modeling?
Predictive tool
Analytic tool
Convey understanding of market and businessmodel
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Balance Sheet
Shows what the company owns (assets)and what it owes (liabilities & net worth)at a given moment in time.
Changes in the balance sheet over time
can reveal important information aboutthe companys business trends.
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Balance Sheet
Assets =
Liabilities + Equity
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Balance SheetCurrent AssetsCashAccounts Receivable
InventoryOther Prepaids
Fixed AssetsNotes ReceivableEquipmentAcc DepreciationOther AssetsGoodwill
Total Assets
$37,494250,000
300,00055,000
$ 642,494
$183,75095,000
(33,400)20,000
2,500,000
$ 3,407,844
Current Liabilit iesAccounts PayableAccrued ExpensesNotes Payable (current)Other
Notes payable (less current)
EquityPreferred StockCommon StockAdditional Paid-in Capital
Retained Earnings
Total Liabilities
& Equity
$110,00031,000
15,0005,000171,000175,000
$ 346,000
5,00015,000
3,250,000
(208,156)
$ 3,407,844
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Balance Sheet
Liquidation Value =
What you owe + Everything Else
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Income Statement
Measures all of a companys revenuesversus all expenses over a specificperiod of time
Provides key financial indicators on
companys performance (Profit, COGS,Gross Margins...)
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Income StatementRevenues
Cost of Sales
Gross ProfitExpenses
Salaries & employee benefitsAdvertising & marketing
Professional & reg. FeesOccupancy & maintenanceDepreciation & amortizationInterest expense
OtherTotal expenses
Income (loss)
Income tax expenseNet Income
$1,805,000
630,000
1,175,000
325,000175,000
78,000118,250
26,20024,000
12,000758,450416,550
156,206260,344
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Statement of Cash Flows
Converts the accrual basis of accountingused to prepare the income statementand balance sheet to a cash basis.
Monitors the flow of cash in and out of thecompany from operating, investing, and
financing activities a must to determinea companys cash position and futurecash needs.
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Statement of Cash Flows
Operating Activities:Cash transactionsrelated to revenues and expenses.
Investing Activities: Cash transactions
related to the acquisition and disposal of allnon-current assets property, equipment andinvestments.
Financing Activities: Cash transactionsrelated to the issuance and retirement of debtand issuance and re-purchase of capital stock.
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Statement of Cash FlowsCF Operating activities
Net Income (loss)Depreciation & amortizationChange in:Accounts receivableInventoryPrepaid & other assetsAccounts pay & accrued exp
CF Investing activitiesPurchase of equipmentPayments on notes payable
CF Financing activitiesProceeds from notes
Net Cash
Cash a beginning of periodCash at end of period
$ 260,34426,200
(100,000)(175,000)
(7,300)(39,000)
(34,756)
(59,000)(43,750)
(102,750)
100,000
(37,506)
75,000$ 37,494
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Another Anomaly
Free cash flow Operating cash flow
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Financial Modeling
What are the primary purposes of financialmodeling for a NV?
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Financial Modeling
What are the primary purposes of financialmodeling for a NV?
Provide the founders and investors a realistic
forecast of the NVs market potential. Project the investment needed to reach
positive cash flow. Provide a basis to indicate the NVs value.
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How can you produce a realistic forecastof the market potential?
Financial Modeling
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Financial Modeling
How can you produce a realisticforecast of the market potential?
Have a clearly defined marketing & sales
strategy Use market-based conservative
assumptions to forecast revenue Use granular details
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Financial Modeling
How can you project the cash needed toreach positive cash flow?
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Financial Modeling
How can you project the cash needed toreach positive cash flow?
Have a clearly defined business model
Use market-based conservativeassumptions to forecast the costs toacquire the revenue streams.
Use granular details
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The Segway to Budgeting It is difficult; Everyone struggles with it
Like the financial model:
Project what has to be done and when
Be conservative and use accepted standards
Project the resources needed to accomplishthe initiatives
Be conservative and use accepted standards
Put these together and convert into a budget
statement
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Questions?