Invest & Impress

Overview

What is a Balance Sheet?

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time.

1. Assets
   • What a company owns that has value and can generate future benefits.
   • Example: Cash, inventory, property, and equipment.
2. Liabilities
   • What a company owes to others, such as debts or obligations.
   • Example: Loans, accounts payable, and mortgages.
3. Equity
   • The residual interest in the company after liabilities are subtracted from assets.
   • Formula: Equity = Assets – Liabilities
   • Example: Retained earnings and shareholder investments.

These three components form the foundation of the balance sheet equation:
Assets = Liabilities + Equity.

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What is an Income Statement?

An income statement (also known as a profit and loss statement) is a financial report that shows a company’s financial performance over a specific period of time.

Revenue−Expenses=Net Income

Revenue (Sales): The total income earned from selling goods or services.
Cost of Goods Sold (COGS): Direct costs of producing goods or services sold.
Gross Profit: Revenue minus COGS.
Operating Expenses: Costs of running the business (e.g., salaries, rent, marketing).
Operating Profit (EBIT): Gross profit minus operating expenses.
Taxes and Interest: Costs related to taxes and borrowed funds.
Net Income (Profit): The final profit after all expenses are deducted.

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What is a Cashflow Statement?

A cash flow statement is a financial report that shows the movement of cash in and out of a company during a specific period. 

Cash Flow from Operating Activities

• Cash generated or used in the company’s core business operations.
• Example: Revenue from sales, payments to suppliers, and employee salaries.

Cash Flow from Investing Activities

• Cash spent or received from investments in assets.
• Example: Buying/selling property, equipment, or investments.

Cash Flow from Financing Activities

• Cash raised or paid to fund the business through debt or equity.
• Example: Issuing stocks, borrowing loans, or repaying dividends.

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