Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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The Periodic Table of Financial Metricswhere chemistry meets profitability...Many people may not know that I flunked high school chemistry š But it wasnāt until years later that I learned about Finance and Accountingā¦And how that TOO was chemistry š§Ŗ Donāt believe me?Check out these financial elements š1ļøā£ OCFOperating Cash FlowNet Income + Other Non-Cash Items - Changes in Working Capital2ļøā£ FCFFree Cash FlowOperating Cash Flow - Capital Expenditures3ļøā£ CCCCash Conversion CycleDays of Inventory Outstanding + Days of Sales Outstanding - Days of Payables Outstanding4ļøā£ NCFNet Cash FlowOperating Cash Flow + Investing Cash Flow + Financing Cash Flow5ļøā£ DCFDiscounted Cash FlowCF1 / (1+r)1 + CF2 / (1+r)2 + ... + CFn / (1+r)n, where CF is cash flow, r is the discount rate, and n is the number of periods.6ļøā£ PVPresent ValueCF / (1+r)^t, where CF is cash flow, r is the discount rate, and t is the number of periods.7ļøā£ FVFuture ValueCF x (1+r)^t, where CF is cash flow, r is the interest rate, and t is the number of periods.8ļøā£ PPPayback PeriodInitial Investment / Annual Cash Flow9ļøā£CRCash Ratio(Cash + Marketable Securities) / Current Liabilitiesš CBCash BurnCash from Operating Activities + Cash from Investing Activities1ļøā£1ļøā£ UFCFUnlevered Free Cash Flow:EBIT x (1 - Tax Rate) + Depr & Amort - CapEx - Incr in Net Working Capital1ļøā£2ļøā£ LFCFLevered Free Cash Flow:EBITDA - Taxes - Capital Expenditures - Changes in Net Working Capital - Interest Expense1ļøā£3ļøā£ GPGross ProfitTotal Revenue - Cost of Goods Sold (COGS)1ļøā£4ļøā£ EBITDAEarnings Before Interest Taxes Depr and AmortNet Income + Int Expense - Int Income + Taxes + Depr + Amort1ļøā£5ļøā£ EBITDA (M)EBITDA MarginEBITDA / Revenue1ļøā£6ļøā£ OINet Operating incomeGross Profit - Operating Expenses1ļøā£7ļøā£ NINet IncomeTotal Revenue - Total Expenses1ļøā£8ļøā£ NIMNet Income MarginNet Profit / Revenue1ļøā£9ļøā£ GPMGross Profit MarginGross Profit / Revenue2ļøā£0ļøā£ ROIReturn on InvestmentNet Profit / Total Investment2ļøā£1ļøā£ ROEReturn on EquityNet Profit / Shareholders Equity2ļøā£2ļøā£ ROAReturn on AssetsNet Profit / Total Assets2ļøā£3ļøā£ NOINet Other IncomeOther Income - Other Expense2ļøā£4ļøā£ EPSEarnings per Share (EPS)Net Profit / Total Shares Outstanding2ļøā£5ļøā£ OMOperating MarginOperating Income / Revenue2ļøā£6ļøā£ PEPrice-to-EarningsPrice per Share / EPS2ļøā£7ļøā£ ROCEReturn on Capital EmployedOperating Profit / Capital EmployedAnd many many more!You donāt have to be a chemistry major to understand theseā¦.But you do have to have a passion for Finance and Accounting š§š¬Would you add any elements?Join the discussion in the laboratory below š PS: get the full high resolution version of these elements via the link in the graphic below
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š„§ Thomas Lewin
I help you help your employees help you. šGrowth, Succession, Employee Retention. ā How? Employee Share Ownership Plans (ESOPs)Experience your employees thinking & acting like owners. š¤
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Josh, finance is much easier than chemistry IMO. š
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Salami Rauf
Cash2Asset Ltd; E-commerce and Fintech
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Similar thing applies to an aspect of managerial economics and engineering design, notably in production optimization.
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Dirk Zee
Follow for AI made easy š„ Get fast results. Your shortcut to success with AI
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Seems we got a lot to do this weekend. Thanks Josh šš
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Rheeshaalaen Sabapathy
ENGINEER | INNOVATOR | TECHIE | TRAILBLAZER | SELF SCHOLAR
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You put alot of hardwork to make other life easier. Very helpful periodic table! Love it man! ā¤ļø š
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Marc Howard
Founder @Taxplow - Charge for outcomes, not hours.
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This is the BEST periodic table since Breaking Bad. Nice work Josh!
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Financial Modeling Prep
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This guide is absolutely fantastic!I'm confident that, being a finance enthusiast, you'll find our tools and resources equally fascinating for more in-depth posts and analysis. Please take a moment to visit our page and website; you'll discover a treasure trove of valuable resources!Financial Modeling Prep provides an abundance of financial data, including historical and real-time stock prices, financial statements, and the latest breaking news.This data is an invaluable asset for conducting financial evaluations, building financial models, conducting ratio analyses, utilizing DCF tools, and ultimately making well-informed investment decisions.For more information, feel free to explore our website at https://site.financialmodelingprep.com/ and unlock the full potential of your financial analysis today!
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Mona Faizan
15 Year experienced Accountant & Bookkeeper (Xero, Quickbooks, VT trans UK, Oracle Financial & SAP FICO, Excel ) working as AP and AR specialist in USA LLC.
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Financial metrics are quantifiable measures used to assess a company's financial performance and health, providing insights into its profitability, liquidity, solvency, and overall financial status.
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Susan Moran
On the lookout for new roles and opportunities
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Like Working Capital, Cashflows determine the solvency of a company. Discounted Cashflows determine the time value of money. You've listed the ratio's which are KPl's (Key Performance Indicator's) and determine the position and financial strength of a company. šÆš®šŖšš”āļø
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Digvijay Singh
āØI help Businesses Upskill their Employees in Data Science Technology - AI, ML, RPA
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Very informative and useful post, Josh! The Periodic Table of Financial Metrics indeed highlights the chemistry between finance and profitability. As someone passionate about Finance and Accounting, I can't wait to deepen my knowledge further with the AI & ChatGPT course catalog "bit.ly/ai-chatgpt-course-catalog." Also, your YouTube channel "https://lnkd.in/gD54ZjUh" looks like a great resource for more finance tips. Looking forward to joining the discussion! šš¬
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Marcio Serafim
Controller na Lassane Tecnologia em EncadernaƧƵes Ltda (Maior empresa da AmƩrica Latina no ramo encadernaƧƵes)
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Congratulations, very simple and intuitive.
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Learn 71 Excel Shortcuts in less than 15 minutes š¤Æyou are going to FLY once you master these shortcuts šāØļøWhen I first started my career, I used the mouse for everything in excel.I often times saw people instead moving at LIGHTNING speed by using just the keyboardā”I heard horror stories of bosses threatening to confiscate the mouse if their employees don't learn to use only the keyboard.Fast forward to today, and Iāll often times hear clients say āDamn, Josh!ā as Iām on the phone with them sketching out their thoughts in excel using only the keyboard.Many people think that keyboard shortcuts are overwhelming, and too hard to learnā¦but in reality, MANY of them are pretty intuitive.Here, let me show youā¦āØļø THE ONES YOU ALREADY KNOWThese are keyboard shortcuts that Iāll bet youāve already used across many applicationsā¦1. Ctrl b - bold2. Ctrl u - underline3. Ctrl i - italic4. Ctrl c - copy5. Ctrl x - cut6. Ctrl v - paste7. Ctrl a - select all8. Ctrl s - save9. Ctrl n - new10. Ctrl o - open11. Ctrl p - print12. Ctrl f - find13. Ctrl z - undo14. Ctrl y - redoAnd just like thatā¦you now know 14 shortcuts.But I know what youāre thinking - you want the cool ones to impress your friends, right?Then letās kick it up a notch šāØļø THE ESSENTIALSThese are the ones above all else that you need to be using1. Ctrl arrow - jump to next / last active cell2. Shift arrow - highlight cells3. Select row - shift + space4. Select column - ctrl + space5. Insert row / column - ctrl + on numerical keypad6. Delete row / column - ctrl + -7. Remove gridlines - alt + w + vg8. Create table - ctrl + t9. Ctrl + 1 - open cell dialogue boxAlright, now letās talk about 3 important shortcuts using the F keys:āØļø THE F KEYS1. F2 - edit cells2. F4 - fix references3. F5 - go toOKā¦if youāve made it this far, you have graduated from Tortoise š¢ to Hare š But letās get you to fly šļøā¦and for that, weāll need to introduce the ALT key.Letās cover 2 quick shortcuts using the alt key1. Autosum - Alt + =2. Access dropdown - Alt + āBut Alt key shortcuts are much more powerfulā¦Most people donāt realize that alt key shortcuts are actually keypad combinations.Instead of holding down all the keys together, you tap them one after the otherā¦and with the alt key, you can access pretty much ANYTHING you need in excel.Here are some of my favoriteā¦1. Freeze panes - alt + w + f + f2. Autofit cells - alt + h + o + i3. Group cells - Alt + A + G4. Remove Duplicates - Alt + A + M5. Define name - Alt + M + M===Excel keyboard shortcuts are like anything in life - the more you practice, the better you get.The better you get, the faster you are in excel.The faster you are in excel, the more time you haveā¦your most precious resource.Check out the video below to become a pro, and donāt forget to subscribe!https://lnkd.in/eVJiWtYk
71 VITAL Excel Shortcuts to Make You LIGHTNING FAST! https://www.youtube.com/
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Learn about the Chart of Accounts šWhat is the Chart of Accounts?The Chart of Accounts is a list of your General Ledger (GL Accounts) that make up your financial statements (specifically, your Profit & Loss and Balance Sheet)Your Chart of Accounts can make or break your financial statementsWhen set up poorly theyā¦ā¹ļø Confuse the readerā¹ļø Donāt tell an accurate picture of whatās happeningā¹ļø Make it challenging to draw insightsHereās are some tips for avoiding these mistakes:ā”ļø Understand WHO the readers of the financial statements areBefore we can decide how our financial statements will look, we must understand who is consuming this data.Your job is to make this data easy for this audience to consume!ā”ļø Apply the proper balance between DETAIL and SUMMARYThe readers of the financial statements should be able to grasp whatās happening with the business, with just the right level of detailā¦not too much, and not too less.Avoid using accounts that can be grouped into one while maintaining the same significanceand avoid using accounts that are too general that would require further commentary to understandā”ļø Include SECTIONSYour financial statements should have a proper order where the readers can understand key accounts and how they relate to one another.Combining accounts into sections can help improve readability, allowing the audience to grasp whatās happening more quicklyā”ļø use NUMBERINGMost Accounting Software will sort your chart of accounts alphabetically by default.This may not cause much of an issue, but can become challenging to organize as your chart of accounts grows.Adding numbering helps you maintain greater flexibility in your ordering, and when set up properly, can help the reader spot out patterns in how certain accounts are numberedā”ļø Set up DEPARTMENTAL TRACKINGUnderstanding what youāre spending money on is helpfulā¦Understanding WHO is spending that money is even more helpfulThatās where departmental tracking comes inHere, you have 2 options:1ļøā£ Utilize a āclassā for each transaction2ļøā£ Add each department as a new section on your Chart of Accounts===Those are a few of my suggestions for keeping your Chart of Accounts healthy & cleanWhat would you add?Let me know in the comments below š
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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The 52 Card Deck of Finance & Accounting šPick up a card and learn something new each time!There is a never ending list of things you need to know if you want to become a CFOā¦What better way to learn while having fun with the family?š Give this post a like if you want me to produce this deck of cards!Hereās whatās included:ā¤ļø ACCOUNTINGLearn the fundamentals of Accounting, the language of business!Master key terms such as:ā¢ Cash vs Accrualā¢ Balance Sheetā¢ Bank Reconciliationsā¢ General Ledgerā¢ Gross Profitā¢ Profit & Lossand moreā¦ā ļø FINANCIAL PLANNING & ANALYSIS (FP&A)FP&A is my favorite area of Finance & Accounting, and once youāre done with these cards, it will be yours too!Learn all about FP&A, including key terms such as:ā¢ Budgetā¢ Forecastā¢ Planningā¢ Varianceand much moreā¦šø FINANCELooking to get a loan? Value a business? Work in investment banking?Then youāll love these cardsā¦Get familiar with many terms such as:ā¢ Discounted Cash Flowsā¢ Free Cash Flowsā¢ Net Present Valueā¢ Return on Invested CapitalAnd more!ā£ļø AUDIT / TAXIf youāre thinking of joining public accountingā¦youāll need to know about Audit and Taxand if youāre notā¦odds are youāll still need to know these termsBecome a pro at auditing with key terms such as:ā¢ Statistical Samplingā¢ Qualified Opinionā¢ Going concernAnd become a tax expert by picking up these cards:ā¢ Income Taxā¢ Sales Taxā¢ Filing Extension===I had a lot of fun putting this one together, and hope you enjoy playing with the 52 card deck of Finance & Accounting!What are some other Finance & Accounting terms youād add to this deck?Let us know in the comments below šPS: If youād like to get a copy of this deck of cards, give this post a like and let me know in the comments below...if enough people ask, Iāll get it produced!
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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The CFO Tech Stack šAfter working with 100+ companies in my careerā¦Iāve been exposed to TONS of tools.These tools are vital in helping us:ā work efficientlyā reduce errorsā reduce costsā save timeHereās an overview of what each of these tools doā”ļø ACCOUNTING SOFTWAREThis can be a traditional accounting softwareā¦.or a full fledged ERPThe idea is that instead of utilizing a spreadsheet, you have the power to leverage:ā automatic bank feedsā integrated & dynamic reportingā bank reconciliationsand so so much moreā”ļø AP PlatformAlmost every company has bills to payā¦and many are still processing them manually from their bankā¦or worseā¦via check š¤®An AP platform is crucial, allowing you to:ā upload bills right from your inboxā categorize & sync bills to your accounting softwareā collect the necessary approvalsā process payments directly from one platformā”ļø Payroll & HRISWeāve come a long way with payroll.No one does this by hand anymore - everyone uses some form of a payroll company.That payroll company helps you:ā onboard new employeesā process paychecks, with withholding taxesā remain in complianceā”ļøExpense Reimbursem*ntsPeople are always spending money on their personal cardsā¦itās a popular way to rack up points.Expense reimbursem*nt softwares make it easy for you to manage the repayments, allowing you to:ā upload receiptsā generate expense reportsā process paymentsā”ļø Payments & Credit CardsInstead of dealing with the headache of expense reimbursem*ntsā¦why not give your employees a virtual credit card?With virtual credit cards you can:ā create a cardā set a limitā destroy a cardā control which vendor they can payall in a matter of seconds.This is one of my favorite tools in this listā”ļø Tax & LegalTaxes are notorious for being complicated and difficult to file.The same holds true for legal mattersā¦which is a common aspect of your cap tableI love working with tools that allows me to stay in compliance..without having to read up on all the legalities š§ā”ļø Revenue & Contract MgmtGot 40+ customers? Donāt make the mistake of managing that all in excel.Sure, Excel is my favorite tool on this listā¦but you need something much more robust.Something that can:ā calculate various metrics (MRR, NDR, CAC etc.)ā manage contract changes, both retroactively and prospectivelyā calculate revenue & deferred revenueā”ļø Banking & TreasuryWe all remember what happened earlier last year with SVBā¦but thankfully, they arenāt the only ones providing banking solutions.Iām a much bigger fan of using a well known bank as opposed to a regional bankā¦as the bigger guys have a lot of integrations & easy to use platforms, which is key for scaling.===I have so much to comment on, but only have 3k characters.Got any tools that you think I missed? Let us know in the comments belowPS: Check out the comments below for my favorite tech stack š
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Learn every Excel errorā¦and how to resolve šExcel errors are really scary šØ But with the right tools, you can debug even the biggest error in your excel file.Let's walk through each one and how to resolve:ā ļø ###This may be the easiest errorā¦it simply means that the data cannot be displayed, because the column is too narrow.š”Resolution ā extend the columnā ļø#REF!This is a really popular error, and relates to when you have a range in a formula that can no longer be foundā¦IE it was deletedš”Resolution ā utilize the trace dependents button before deleting somethingā ļø #DIV/0This is when you try and divide something by 0š”Resolution ā trace the reference in the formula, and revise the denominator from 0.ā ļø #N/AThis one is similar to #REF!ā¦only itās in the context of lookups, and specifically whenever a match canāt be foundš”Resolution ādouble check the lookup value in your formula to ensure it exists in your lookup rangeā ļø #NAME?This is whenever you have a typo in your formula, or named range.š”Resolution ā double check the spelling and ensure youāre using the right namingā ļø #VALUE!This one is whenever you have an incorrect character in a formula or referenceš”Resolution ā refer back to the range where the data is contained, and remove any incorrect charactersā ļø #NULL!This error will show whenever you either have an incorrect data type of number format in a formula, or if excel canāt perform an excel calculation.A popular example here is when you try to take the square root of a negative number in excel.Similarly, you may come across this error when using IRR or RATE and no result can be found.š”Resolution ā you can enable iterative calculations, just like you would with circular references.ā ļø #NUM!You may come across this error whenever you include a space in a formula instead of a : or a , between 2 arguments.The resolution is simple - replace the space with a colon or commaā ļø #CALC!Hereās another one that you may not have come acrossā¦Array functions are those that return an array or results rather than a specific result. In this case, thereās no answer to return, so youāll get this error.š”Resolution ā double check your formula and ensure that your search value can be foundā ļø #SPILL!This one is pretty straight forward, and is reserved for when you try to utilize a spill function.More specifically, itās when your spill function is blocked by a value, and the function canāt SPILL into other cells.š”Resolution ā simply remove the values that are blocking the spill function.ā ļø #BLOCKED!This last one I actually never heard of, till one of my readers pointed it out - itās when you donāt have the permissions to access data, such as a license, connection, or privacy setting.š”Resolution ā check your permissions / licenses.===Is your Excel sheet wkbk now error free?Mission accomplished š Let me know which one you've seen before below š
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Learn about Cash vs AccrualThese 2 methods are the foundation to financial reportingā¦and can result in wildly different figuresLetās start with some definitions:ā”ļø What does Cash vs Accrual Mean?These 2 methods are ways in which you can report information on your financial statements.Each method follows a different set of rules, which can cause the data to mean something entirely different across each.ā”ļø CASH BasisUnder the Cash basis of accounting, money IN is treated as income, while money OUT is treated as expensesNote that while this is generally true, there are some exceptions:āļøMoney IN can represent an expense refund (negative expense), or debt (which is a balance sheet item) to name a fewā¦āļøMoney OUT can represent a sales refund (reduction in sales), or inventory / fixed asset (which are balance sheet items) to name a fewā¦ā”ļø ACCRUAL BasisUnder the Accrual basis of accounting, income is only recognized once itās EARNED, while expenses are only recorded once they are INCURREDWhat does that mean?Earning income means you delivered your product or serviceIncurring expenses means you consumed something that had a cost ā¦and this is where so many of the adjusting journal entries that are required each month are prepared such as1ļøā£ Prepaids - causing you to amortize certain expenses paid upfront to be split over the the period in which it gets incurred2ļøā£ Deferred Revenue - causing you to amortize income collected / invoiced upfront over the life of the contract3ļøā£ Accruals - causing you to recognize certain expenses in the current period, even if the bill hasnāt been received, or the payment has been madeš¤ So which method do I prefer?For small companies, the cash basis is great, as it simplifies much of your reportingAt the same time, larger companies almost always opt for the accrual basis of accounting, for the following reasons1ļøā£ GAAP Requires AccrualWhile the IRS may allow companies up to a certain size to report under either method, GAAP requires you to reconcile under the accrual method.That can be especially relevant for the 2nd reason:2ļøā£ Investors like to see whatās really happeningWhen you have outside investors, itās common for them to want to see your financial statements under the accrual basisWhy?Because the accrual basis explains whatās really happening in the business, allowing you to make better sense on key KPIs & margins, and to forecast the futureSo in short:ā¾SMALL BUSINESSES without a heavy amount of outside capital can benefit from the SIMPLICITY of the CASH BASIS of accountingā¾ LARGER BUSINESSES with a larger amount of outside capital are often required to record under the ACCRUAL basis===Thatās my take on the Cash vs Accrualā¦but thereās much more to itWhat would you add?Join the discussion in the comments below šPS: We cover this topic, and much more in my course Accounting Made Easyš https://lnkd.in/eNdDWx52
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Learn 9 Ways to Forecast šEach time I build a forecast for a client, I work on first getting to know their business.I ask questions likeā¦ā How do you make money?ā What are your plans for growth?ā What is currently happening with your business?From there, I start to formulate a rough idea for how weāre going to build our forecastā¦but each section of the Profit & Loss and Balance Sheet may require a different approach.While they all differ, almost all forecasts I build include one / all of these 9 methods:1ļøā£ 6 mo. historical average š¤ How it works ā take the last 6 months value. Can take it one step further by adding a buffer (like a 5% increase)š” Why itās useful ā The future often times blends well with the past, especially in the first few months of projections2ļøā£ Prior mo. balanceš¤ How it works ā Set your projection to last months valueš” Why itās useful ā extra helpful when forecasting the balance sheet for accounts with minimal movements3ļøā£ % of revenueš¤ How it works ā Set your projection to take a % of revenueš” Why itās useful ā As revenue scales, expenses tend to scale as well4ļøā£ $ per hireš¤ How it works ā Set a $ figure for each hireWhy itās useful ā Expenses / capex often times scale with each new hire5ļøā£ Fixed Assumptionš¤ How it works ā enter in any values or schedules you have on handš” Why itās useful ā for items like insurance or rent where you have a fixed schedule, you can plug them right into your forecast6ļøā£ YoY Growthš¤ How it works ā take the value from 12 months prior and add a growth factorš” Why itās useful ā for companies with seasonality, you can match the schedule from the prior year, and add a buffer if need be7ļøā£ Annual inputsš¤ How it works ā Enter in assumptions for the entire year, then divide by 12 for monthly projectionsš” Why itās useful ā simple and quick way to forecast for an entire year8ļøā£ Departmental Intakeš¤ How it works ā sit down with each department head, and come up with a bottoms up budget for their departmentš” Why itās useful ā collect valuable information that you may not have insight into, hold each department head accountable to results & performance9ļøā£ Zeroed outš¤ How it works ā forecast 0 going forwardš” Why itās useful ā can be useful if you donāt expect any future values in this account, or if you project values in another account that relates to this account===So which is the right method?There is no right one method for a businessā¦each line item on your general ledger should be analyzed as you choose the best forecasting method.As a general idea, I typically start out with making all opex accounts other than headcount a 6 month averageā¦and every balance sheet account other than cash + retained earnings equal to last month.From there, I can add more and more detail as necessary.What is your favorite method of forecasting?Let us know by joining in on the discussion in the comments below š
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Look ma, Iām on Youtube!Learn The Accounting Equation like never beforeā¦Iām thrilled to announce the launch of our channel on Youtube today š„³Over the next several months, I will be uploading videos on Accounting, FP&A, and excel topics to help you continue to grow in your career šLike my content & infographics on linkedin? then youāll LOVE the videos weāll be producing on youtubeā¦starting with this one on the accounting equationThe Accounting equation is often times the first thing youāll learn in a college Accounting courseā¦and many would say itās the most important concept in Accounting (hence the name)But whatās so special about it? Letās dive in.ā”ļø What the idea?This equation summarizes how a business can be interpreted using a report called a āBalance Sheetā.It introduces the concept of ādouble entryā accounting, where every transaction in a business affects 2 items in a balance sheet, and atleast 1 of these section.ā”ļø What exactly does it mean?Letās do a quick set of definitionsā¦Assets ā Items of economic value that the business owns or substantially controls (cash, receivables, inventory)Liabilities ā amounts that you owe to creditors (credit cards, loans, deferred revenue)Owners Equity ā amounts that the owners are owed (IE: whatās left after you subtract liabilities from assets)So the accounting equation explains that all of your assets came from either amounts funded by creditors (liabilities) or owners (owners equity)ā”ļø Whatās so special about that?Wellā¦a lot.1ļøā£ It all balancesNet Income is calculated on your P&L by taking all income accounts less all expense accounts.And that feeds into your owners equity via an account called retained earnings.So when net income goes up, your owners equity goes upā¦when net income goes downā¦your owners equity goes down.Since Assets must always = liabilities + owners equity, you know that the must be a corresponding effect in your assets or liabilities.2ļøā£ Debits & CreditsDebits & Credits are the mechanism you use to showcase the movements of account balances in your general ledger.So however they work for Assets, is the complete opposite for how they work for Liabilities and Owners Equity.For example:Assets: ā¬ļø Go up with a Debit, ā¬ļø Go down with a creditLiabilities + Owners Equity: ā¬ļø Go up with a credit, ā¬ļøGo down with a debitNow you know your debits & credits===I hope you enjoy our first video, because we have plenty more coming!Please donāt be shy and let me know your feedback in the comments below šhttps://lnkd.in/eAgn-4bq
The MOST IMPORTANT concept in Accounting: The Accounting Equation https://www.youtube.com/
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Master the Financial Statements with these 123 examples of accounts (with definitions) š If you understand Financial Statementsā¦You understand so much about1ļøā£ Business2ļøā£ Finance3ļøā£ Accountingand much moreā¦Letās go over 123 examples of accounts you may find on your financial statementsā¦starting with the Profit & Lossā”ļø What is the Profit & Loss (P&L)?The P&L tells you what you are EARNINGā¦and what you are CONSUMINGā¦Learn more about the P&L over herehttps://lnkd.in/eDspfRQXItās separated by:āŖļø REVENUE ā what you are earning via salesRead more about revenue over here https://lnkd.in/ejNEsaxqand here https://lnkd.in/euGAPzvWāŖļø COGS ā the cost to carry out your revenueRead more about COGS over here https://lnkd.in/eYw8EVeTāŖļø OPEX ā the cost to operate your businessRead more about Opex over here https://lnkd.in/eyECjBfPāŖļø OTHER INCOME / OTHER EXPENSE ā Other income & expense amounts that donāt relate to your core businessLearn more about Other Income / Expense over here https://lnkd.in/e5Vcb5C9ā”ļøWhat is the Balance Sheet?The Balance Sheet is a snap shot in time of your businessesLearn more about the balance sheet over here: https://lnkd.in/eFDAMQnQThe Balance Sheet is broken out byā¦āŖļø ASSETS Items of economic value that the business owns / substantially controls)Learn more about Assets over here https://lnkd.in/eCcp68ZyāŖļø LIABILITIES- what the business owes to creditorsLearn more about Liabilities over here https://lnkd.in/ecwi6cE9āŖļø OWNERS EQUITY (what the business owes to owners)Learn more about Owners Equity over here https://lnkd.in/eGrWvUYU===Understanding financial statements has given me a large ROI in my career...and the more you are able to understand these statementsthe better off you are to understanding your businessWhat would you add?Let me know in the comments below š
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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The ABCs of AccountingWonāt you sing along with me?A AssetsItems of Economic Value that you own / substantially controlBBalance sheetSnapshot of the business showing the Assets, Liabilities, and Owners EquityC Cash flowThe total cash entering & leaving your bank accountDDepreciationThe wear and tear on the fixed assets in our businessEEBITDAEarnings Before Interest Taxes Depreciation & AmortizationF Financial statementsThe Income Statement, Balance Sheet, and Cash FlowsGGAAPGenerally Accepted Accounting Principles HHistorical costThe cost to acquire an assetI Income statementShowās you the income & expenses of your business, and various levels of profitabilityJJournal entriesYour Debits & CreditsKKPIs Key Performance IndicatorsLLiabilitiesObligations & amounts owed to creditors of the businessMMatching principleAn accounting principle that requires you to match the timing of income with the timing of expensesNNet incomeRevenue - COGS - Operating Expenses + Other Income - Other ExpensesOOwners EquityAmounts contributed by owners + prior earningsPProfitWhat you earn after costsQQuick ratio (Current Assets - Inventory) / Current LiabilitiesRRevenueYour incomeSShareholdersThe owners of the companyTTaxesAmounts owed to the governmentUUnearned revenueThe amount of revenue collected / due, but not yet earnedVValuationHow much a company is worthWWorking capitalCurrent Assets - Current LiabilitiesX eXpensesThe costs associated with your businessYYieldThe return on an investmentZZero-based budgetingA method of budgeting where you start from 0 and justify every financial activity===Thanks for signing along!Any other examples youād add? Let us know in the comments below šPS: Download ā¬ļø this poster in high resolution by visiting my website!
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