accounting and finance.pdf

8/9/2019 Accounting and Finance.pdf

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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?

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