Long Term Mindset on LinkedIn: How to analyze a Cash Flow Statement in < 2 minutes: Ask these questions:… | 10 comments (2024)

EBITDA Vs FCFWhat's the difference?EBTIDA = EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATIONFORMULA: Net Income + Depreciation & Amortization +/- Non-Operating Income And Expenses + Interest + Income Tax Expense→ EBITDA measures a company's ability to generate profits before considering non-operating expenses such as interest, taxes, depreciation, and amortization.PROS:1: Comparability: EBITDA allows companies with different capital structures to be compared.2: Simplicity: EBITDA provides a quick snapshot of a company’s profit performance.3: Proxy for Cash Generation: EBITDA is often used as a fast way to measure a company's ability to generate cash from its core operations.CONS:1: Ignores Non-Operating Expenses: EBITDA excludes important expenses such as interest, taxes, depreciation, and amortization.2: Lack of Cash Flow Information: EBITDA does not provide an accurate insight into a company's ability to generate cash.3: Susceptible to Manipulation: EBITDA can be manipulated by adjusting accounting practices, making it less reliable.FCF = FREE CASH FLOWFORMULA: Net Income + Depreciation & Amortization +/- Non-Cash Income And Expenses +/- Changes In Net Working Capital - Capital Expenditures→FCF measures a company’s ability to generate cash from operations using cash accounting after deducting capital expenditures (CAPEX).PROS:1: Focus on Cash: FCF directly measures the cash generated by a company's operations.2: Flexibility: FCF is a better measure of a company’s ability to pay off debt and return capital to shareholders3: Hard To Manipulate: FCF is much harder for a management team to manipulate than EBITDA or Net IncomeCONS:1: Complexity: There are many varieties of FCF, which can make them time-consuming to calculate2: Volatility: FCF can fluctuate widely from year to year due to changes in working capital needs and capital expenditure spending cycles.3: Limited Comparability: Comparing FCF across industries is challenging due to differences in accounting practices and capital structures.Personally, I value Free Cash Flow 10x higher than EBITDA, but I understand why EBITDA is so widely used.Which metric do you use? Let me know in the comments below!***➕ Follow Long Term Mindset for more content like this.Want to master the basics of accounting (for free)?Enroll in our email-based course: Financial Statements SchoolGet started here (It's free) → https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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Key Finance & Accounting Roles ExplainedCredits to the post by Aleksandar Stojanovic, MSc. - Go follow him!Embarking on a career in Finance & Accounting?You would like to know where you fit and what to learn.Here’s a step-by-step guide to critical roles and responsibilities:🔘 CFO (Chief Financial Officer): For those who envision the financial big picture.1. Strategic Planning: Cultivate a holistic view of financial growth.2. Capital Structuring: Master the art of effective funding.3. Risk Management: Grasp crucial techniques to safeguard assets.4. Stakeholder Communication: Build bridges with investors and board members.5. Forecasting: Harness the power of future financial insights.🔘 Financial Analyst: Dive deep for those analytical minds.6. Data Analysis: Extract significant patterns from financial data.7. Budgeting & Planning: Understand the nuances of allocation.8. Performance Metrics: Discover vital KPIs for business health.9. Report Creation: Master the art of insightful reporting.🔘 Internal Auditor: For the diligent and detail-oriented.10. Risk Assessments: Spot vulnerabilities before they escalate.11. Process Evaluations: Streamline operations for efficiency.12. Compliance Checks: Ensure adherence to financial standards.13. Recommendations: Provide insights for optimization.🔘 Tax Specialist: Navigate the intricate maze of taxation.14. Tax Strategy: Formulate effective tax-saving methods.15. Compliance & Reporting: Adhere to the ever-evolving tax laws.16. Audit Defense: Safeguard against potential tax inquiries.17. Tax Forecasting: Predict future tax implications.🔘 Accountant: The backbone of everyday financial health.18. Record Keeping: Maintain pristine financial records.19. Financial Statements: Generate periodic business health reports.20. Reconciliation: Ensure accuracy in books.21. Tax Preparation: Assist in timely and accurate tax filing.These roles encompass different aspects of Finance & Accounting, catering to various interests and skill sets.Explore these areas, identify your interests, and tailor your learning path accordingly.Determined to elevate your financial strategy but unsure where to start?Follow Long Term Mindset for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) → https://lnkd.in/eKbRV7g6If you found this post useful, please repost ♻️ to share with your audience

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IFRS vs GAAP - CHEAT SHEETAccounting is the language of business.In the United States, the accounting language is called GAAP, which stands for Generally Accepted Accounting Principles.The accounting language in the rest of the world is called IFRS, which stands for International Financial Reporting Standards.While both languages are similar, here are some noteworthy differences:IFRS 📜INCOME STATEMENT: 2 years allowedBALANCE SHEET: Increasing order of liquidityCASH FLOW STATEMENT: Flexibility with locationINTERIM REPORTS: Each interim period is an integral part of fiscal yearNON-STANDARD METRICS: Alternative EPS allowedR&D COSTS: Capitalized when specific conditions are metINCOME TAXES: Recognized as assets when probableINVESTMENT PROPERTY: A separate categoryBIOLOGICAL ASSETS: Included in inventoryLEASES: Single category on balance sheetCONTINGENT LIABILITIES: Recognized when > 50% likelyINVENTORIES: LIFO not allowedFIXED ASSETS: Fair value allowedINTANGIBLES: Fair value allowedLEASES: IFRS 16 effective 2019DEBT ISSUANCE COSTS: Costs are netted against the outstanding debtREVENUES: IFRS 15 effective 2018GAAP 📜INCOME STATEMENT: 3 years requiredBALANCE SHEET: Decreasing order of liquidityCASH FLOW STATEMENT: No flexibility with locationINTERIM REPORTS: Each interim period is an integral part of fiscal yearNON-STANDARD METRICS: Alternative EPS is prohibitedR&D COSTS: ExpensedINCOME TAXES: All differed taxes recognizedINVESTMENT PROPERTY: Not separateBIOLOGICAL ASSETS: Measured at fair value, separate from InventoryLEASES: Categories for operating & finance leasesCONTINGENT LIABILITIES: Recognized when > 75% likelyINVENTORIES: LIFO allowedFIXED ASSETS: HIstorical costINTANGIBLES: HIstorical costLEASES: ASC 842, effective 2018DEBT ISSUANCE COSTS: ASU 2015-03REVENUES: ASC 606, effective 2018Was this helpful? Let me know in the comments section below!All credit to Wall Street Prep for this great summary.***➕ Follow Long Term Mindset for more content like this.Want to master the basics of accounting (for free)?Enroll in our email-based course: Financial Statements SchoolGet started here (It's free) → https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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𝗙𝗶𝗻𝗮𝗻𝗰𝗲 𝗗𝗲𝗽𝗮𝗿𝘁𝗺𝗲𝗻𝘁 𝗛𝗶𝗲𝗿𝗮𝗿𝗰𝗵𝘆Post by Abdul Khaliq - Follow him!Depending on the organization's size, the roles become specialized or require multitasking skills.In large corporations, each function is usually handled by a specialized individual.In SMEs, one individual may perform multiple functions.Nevertheless, the functions remain almost the same; somebody has to carry out these duties.The following job titles have been included:•The Finance Manager - Accounting manages day-to-day accounting operations and financial reporting.• Financial Reporting Specialist handles the preparation and presentation of financial statements.• Accounts Payable Accountant manages the organization's outgoing payments and vendor relationships.• Accounts Receivable Accountant is responsible for collecting outstanding payments from customers.• General Ledger Accountant maintains the company's financial records and ensures accuracy.• Fixed Assets Accountant manages and tracks the organization's long-term assets.• The Head of FP&A leads the Financial Planning and Analysis function, driving strategic financial planning, budgeting, and forecasting initiatives.• FP&A Manager oversees the entire Financial Planning and Analysis team, ensuring strategic alignment and effective financial decision-making.• FP&A Analyst conducts in-depth financial analysis, generates reports, and provides insights to support planning and decision-making processes.• Budget Analyst focuses on developing and managing budgets, analyzing variances, and collaborating with departments to optimize financial performance.• Head of Treasury strategically manages the organization's treasury function, overseeing risk management, liquidity, and financial planning.• Treasury Manager executes treasury strategies, monitors cash flow, and ensures financial risk management.• Cash Management Specialist optimizes cash position forecasts and implements strategies to enhance liquidity.• Bank Relations Officer handles relationships with financial institutions and negotiates terms.• Head of Risk Management leads the overall risk strategy.• Manager, Risk Management oversees day-to-day risk operations, implementing risk mitigation strategies.• ...Follow Long Term Mindset for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) → https://lnkd.in/eKbRV7g6If you found this post useful, please repost ♻️ to share with your audience

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EBITDA RatiosEBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation & Amortization.Here are 5 key ratios to study:EBITDA MARGIN→EQUATION: EBITDA / Revenue→Question: How much of your Revenue was turned into EBITDA?EBITDA INTEREST COVERAGE→EQUATION: EBITDA / Interest Expense→Question: How many times can your EBITDA cover your Interest Expense?TOTAL DEBT TO EBITDA→EQUATION: Total Debt / EBITDA→Question: How many years would it take to repay all outstanding debt if 100% of EBITDA went toward debt payments?ENTERPRISE VALUE TO EBITDA→EQUATION: Enterprise Value / EBITDA→Question: What EBITDA to Enterprise Value multiple is the market valuing the company at?PRICE TO EBITDA→EQUATION: Market Capitalization / EBITDA→Question: What EBITDA to Market Capitalization multiple is the market valuing the company at?Notes:Market Capitalization = Share Price X Shares OutstandingEnterprise Value = Market Capitalization + Debt - CashWhich EBITDA ratio is most useful? Let me know in the comments below!***➕ Follow Long Term Mindset for more content like this.Want to master the basics of accounting (for free)?Enroll in our email-based course: Financial Statements SchoolGet started here (It's free) → https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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How the Financial Statements are connectedOriginal post by Josh Aharonoff, CPA - Give him a follow!This Mindmap will give you everything you need to grasp the connectedness of the Financial Statements...and that should come in handy...as the Financial Statements are a popular topic in Finance & Accounting.In fact...almost everything revolves around themBut how do they work? And how are they connected?Let’s dive in:➡️ The Profit & LossThis statement is all about telling you what your income, and your costsYour income is summarized by1️⃣ Revenue → income related to your core business2️⃣ Other Income → income related to none core activities (like credit card points)Your expenses is summarized by:1️⃣ Cost of Goods Sold → Costs that relate to carrying out your product or service2️⃣ Operating Expenses → Costs that relate to operating your business3️⃣ Other Expense → Costs that don’t relate to carrying out your income, or operating your businessThe bottom line metric in a Profit & loss is your net income, which takes all income accounts, less all expense accountsThe P&L is a SELFISH financial statement…it pushes it’s data to the other 2 statements, but doesn’t care about any activities from the other 2 statements when presenting it’s information*Note - it’s common to have journal entries that relate to both the Profit & Loss and the Balance Sheet➡️ The Balance SheetThis statement tells you all about the financial position of your companyit is summarized by:1️⃣ Assets → Amounts of Economic value that business owns, or substantially controls2️⃣ Liabilities → Amounts that you owe to creditors3️⃣ Owners Equity → Amounts that you owe to the ownersThe Balance sheet is presented on a cumulative basis, which is the only statement of the 3 that acts this wayand it PULLS from the Income Statement via an account called RETAINED EARNINGS, which is a cumulative balance of your NET INCOME from your Profit & Loss➡️ The Statement of Cash FlowsThis statement is all about telling you where your cash is goingit is separated by:1️⃣ Cash from Operating activities → this section relates to cash movements from operating your business2️⃣ Cash from Investing activities → This section relates to cash movements from fixed & long term assets (IE, Assets that are invested into the business for long term benefit)3️⃣ Cash from Financing activities → This section relates to cash movements from amounts invested by owners, or creditors - both for amounts put in, and amounts repaidFollow Long Term Mindset for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) → https://lnkd.in/eKbRV7g6If you found this post useful, please repost ♻️ to share with your audience

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COGS vs SG&A vs OPEXWhat's the difference?COST OF GOODS SOLD (COGS) 💳COGS represents the direct costs associated with delivering the service or producing/ acquiring the goods a company sells during a specific period.Examples:→ Cost of raw materials 🏗→ Cost of manufacturing labor 👨🔧→ Cost of manufacturing deprecation 🏭COGS is a key component in calculating the gross profit of a company.Gross profit is determined by subtracting COGS from total revenue.Gross profit reflects the profitability of a company's core production or manufacturingactivities.SELLING, GENERAL, & ADMINISTRATIVE (SG&A) 👩💼SG&A expenses encompass all costs associated with selling, general management, and administrative functions of a company. These expenses are NOT directly tied to production but support the overall businessoperations.Examples:→ Rent & insurance expenses 🏫→ Marketing & selling expenses 👩💼→ Research & Development expenses 👨🔬SG&A is often a company's largest expense.SG&A is subtracted from gross profit to find a company's operating income.OPERATING EXPENSES (OPEX) 🏭Operating expenses include all the costs that a company incurs in its day-to-day operations, including SG&A, but excluding COGS. OPEX encompasses expenditures such as rent, utilities, salaries, marketing, sales, and research and development.Examples:→ Accounting expenses 👨💻→ Legal expenses 👨⚖️→ Advertising and promotional expenses 👨💼SG&A and OPEX are synonyms for each other. They both refer to all expenses a company has not directly related to delivering the service or creating the product.Was this helpful? Let me know in the comments section below!***➕ FollowLong Term Mindset for more content like this.Want to master the basics of accounting (for free)?Enroll in our email-based course: Financial Statements SchoolGet started here (It's free) →https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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