E Book, Read & Understand Financial Statements

Note the logo.=> Profitability and Cash Flow are the results to Business Planning.

In order to achieve the two, one must be able to read and understand the P&L Statement and the Balance Sheet. The cash flow statement is the tool that makes P&L and Balance Sheet work together.

Profitability or loss is the final entry on the P&L statement. The key to achieving profitability is controlling expenses, not increasing sales. One must have an in depth understanding of the cost structure. Many will focus on sales being the key to achieving officiality, but if you do not control expenses, then all the sales in the world will not result in profits.

Get the foundation about how all this works.

A positive cash flow is the result of profits on the P&L and the control of uses and sources of cash items, which are found on the balance sheet. It is possible to have a profit on the P&L and not have any cash, because of the lack of management of accounts receivable or inventory, balance sheet items.

So, for cash flow actions we look at items on the Balance Sheet. The purchase of new equipment accounts receivable and inventory at the end of a time are major users of cash.

Current and long-term liabilities (bank debt/bond debt) are a source of cash. Paid in capital (equity is a source of cash) and is net income is a source of cash, if positive, and a use of cash if there is a loss.

So, we can generalize and state that profitability is related to the P&L statement and cash flow refers to the balance sheet.

Having this E Book, Read & Understand Financial Statements

• enables you to have an e-book written in easy to understand sentences, and not typical phrases used by accountants. get it here

COST OF GOODS SOLD (COGS)

In a manufacturing establishment, Cost of Goods Sold represents all the costs incurred in the factory in producing the products that were sold during a time period.

• The introduction discusses the three types of financial statements.

To recap, the three financial statements defined are:

• The P&L Statement: A historical document that shows the revenue and associated costs generated in the business over a month, quarter, or year, usually ending on the last day of the period.
• The Balance Sheet: A snapshot of the financial condition of a company at the end of the month, quarter or year.
• The Cash Flow Statement: The blending document that takes the results from the P&L Statement and the Balance Sheet and creates the ending cash balance for the time period.

So once again this E Book, Read & Understand Financial Statements is the foundation for better understanding how all this works when you see it in The Balance Sheet that Always balances.