1. Income statement The income statement determines: • are you efficient • are you profitable • how to make better decisions • how much money do you make • what costs do you need to control

You only need to know 3 things to understand finance. I could have saved myself: • Accounting degree • Master's in accounting • 10 years working at KPMG • 10+ years as a VP of Finance / CFO If I just learned to read these 3 financial statements:

The three financial statements you need to know are: • Balance sheet - are you stable • Income statement - are you profitable • Statement of cash flows - will you survive

• Income statement structure The structure of an income statement is revenue minus expenses. Revenue is what you earn from sales or provision of: • Merchandise • Revenue from services • Miscellaneous revenue, such as interest

• Expenses Expenses can be broken into: Cost of goods sold - what it costs you to manufacture what you sell. Overhead expenses are costs required to run the business that aren't directly tied to revenue.

• Overhead expenses There are two categories of overhead expenses: • Variable costs Variable costs move up or down based on a level of activity: If every unit we sell requires a $1 box. If we sell 100 units, it costs $100 and if we sell 5 units, $5.

• Fixed costs Fixed costs don't change with levels of activity. You pay $10,000 per year in rent whether you sell 100 units or you sell 5 units. Minimize fixed costs and control your variable costs.

• Balance Sheet The balance sheet tells you whether your business is healthy: • Is there cash • Can you pay your bills • How much debt do you have The structure of a balance sheet is: Assets = Liabilities + Equity

• Assets are what you own: • cash • inventory (goods available for sale) • accounts receivable (what people owe you) • Fixed assets (land, machinery, equipment, and buildings) Increase these buckets over time.

• Liabilities are what you owe: • accounts payable • income tax payable • mortgages and long-term debt Liabilities provide working capital.

• Equity is what you're worth If you sold your assets and paid your liabilities, equity's what's left over: • money contributed (common shares) • profits taken out of the business (dividends) • earnings retained in the business (retained earnings)

• Balance sheet focus: • how much cash is there • can current assets cover liabilities • can the company meet its debt obligations • what is the debt to equity ratio (lower is healthier)

• Statement of cashflows How much cash did you receive or use over a period of time from: • financing • operations • investments opening cash + net increase or decrease of cash during the period = ending cash

• Cash flow from operating activities How much cash is generated from business activities: • rent • cash from sales • income tax payments • salary and wage expense

• Cash flow from investing activities Includes a company's investments: • purchase and sale of assets • loans made to vendors or received from customers • purchase or sale of machinery, plant, and equipment

• Cash flow from financing activities You raise capital from investors, banks, and shareholders: • capital raised • dividends paid • principal on debt • principal repayments

• Cash flow focus: • Is cashflow positive • Why is cashflow positive or negative • Are operations strong enough without financing or investments Can your company survive from operations or is it alive because of investments and financing.

TL;DR: Financial statements don't need to be scary. There are three financial statements you need to know: • Balance sheet • Income statement • Statement of cash flows They tell you: • Am I stable • Am I profitable • Am I going to survive