Finance

Business will only survive if revenue is more than expenditure. Without profit the owners won’t be compensated. If their time isn’t worth the time, they will stop giving. If less profit, more troublesome for changing times. Business is to know what helps other along with oneself. Profit margin is the difference between the revenue captured and amount spent to capture. margin captu. (Revenue-cost/revenue )*100 = %Margin

Suppose you invest 1 INR to get 2 INR. The profit margin is 50%. If you invest 100 INR to get 150 INR that’s a profit margin of 33% and profit of 50 INR. If you sell same product for 300 INR, it is a profit margin of 66%. The higher the price and lower the cost, the more profit margin there is. Profit margin can never exceed 100%. Markup: Price-cost/price

If price markup is 1 INR and you sell it for 2 INR. The price markup. Higher the price. Lower the cost, higher the markup. Markup can be 100%, 200%. Higher the margin more profit the business gets to keep. New offer, competitive prices by other business. If business needs to cut business, it cuts one with lowest margin. Higher the margin stronger the business.

Every business must capture profit some value in form of revenue, else it will have difficulty. 1 million, 1000000 you capture 10.

Cash flow helps know how company is performing. Withdraw is cash flow out. Cash flow examining the bank balance account of a company. The time is day, month to a year. month and year is for tracking the performance. Short time periods like days and weeks is to make sure the company doesn’t fall short of cash.

Longer periods are important for tracking the performance over time. Cash flow is of three types:

Operations (selling offers and buying), investments (paying for capital expenses and collecting dividends), financing (borrowing and paying it back). Cash flow tracks these three separately. If company spends a lot but very less is coming the company’s cash positioning will decrease over time. There’s less room for creative intervention.

Free cash flow: Amount of cash from operations-cash spent for equipments for operations necessary to keep the company running.

Each company has different options like invest, create new offer, hire new employees, purchase equipment or acquire another company. More cash a company has more option they have.

Cash is not profit. Accrual accounting revenue is recognised immediately like product is purchase, service attained; instead of acknowledging when cash flows in. An accountant’s role is to match the revenue and the expenses as accurately as possible. Income statement is also called as operating Statement/profit and loss/earning statements. It is:

Revenue-cost of goods sold- expenses-taxes= Net profit.

Matching principle introduces biases in income system. Balance sheet shows the net worth, it is for a specific day. Owners equity= Asset – Liabilities. Liability is loans, financing etc. For larger businesses includes inventory, equipment, long and short term debts, company’s stock, retained earning.

Assets = owner’s equity + liability

Profitability ratio is the company’s ability to gain profit. Net profit/assets = asset ratio

Total liability/share holders equity= debt

It tells how much amount the company has borrowed for every little amount in equity.

Balance sheet: Financial modelling, income statement, balance sheet and cash flow.