Mighty Digits

The Financial Statements...explained on ONE page It doesn't matter what industry you are in… EVERYONE should understand how to read financial statements. Financial literacy is the cornerstone of business success. When you understand Financial Statements you… ? Understand more about business ? Can perform your job in Finance & Accounting better ? Can build a robust forecast and so much more Understanding these statements is crucial for making informed business decisions. Let's do a deep dive on how they work ?? The Profit & Loss (also known as Income Statement) This statement is all about telling you about the PERFORMANCE of your company…IE your income, and your costs Your income is summarized by 1?? Revenue → income related to your core business 2?? Other Income → income related to none core activities (like credit card points) These components work together to give you a complete picture of your income streams. Your expenses are summarized by: 1?? Cost of Goods Sold → Costs that relate to carrying out your product or service 2?? Operating Expenses → Costs that relate to operating your business 3?? Other Expense → Costs that don't relate to carrying out your income, or operating your business Understanding these expense categories is vital for effective cost management. From these you get a bunch of profitability metrics such as Gross Profit (Revenue-COGS), Net Operating Income (Gross Profit - Opex), and net income (all income - all expenses ?? The Balance Sheet This statement tells you all about the financial POSITION of your company it is summarized by: 1?? Assets → Amounts of Economic value that business owns, or substantially controls 2?? Liabilities → Amounts that you owe to creditors 3?? Owners Equity → Amounts that you owe to the owners The Balance sheet is presented on a cumulative basis, which is the only statement of the 3 that acts this way ?? The Statement of Cash Flows This statement is all about telling you where your cash is going it is separated by: 1?? Cash from Operating activities → this section relates to cash movements from operating your business 2?? Cash from Investing activities → cash movements from fixed & long term assets (IE, Assets that are invested for long term benefit) 3?? Cash from Financing activities → cash movements from amounts invested by owners, or creditors - both for amounts put in, and amounts repaid We've done our best to include everything you need to know about how to read Financial Statements in the graphic below… but there's so much more to say. What would you add? PS: Need help streamlining your financial statement process? We can help you implement efficient systems and processes to make your monthly close smoother and faster. Learn more here: https://lnkd.in/edFqmq9B

Here's how Financial Statements get Produced ?? We've closed the books 100s of times in our career for countless fast growing businesses… And each time we have, we've followed the same process from start to finish. STEP 1?? → SOURCE TRANSACTIONS It all starts with your source transactions. These can be a variety of transaction types such as… ? Bank Deposits ? Credit Card Expenses ? Bills ? Invoices ? Consumed expenses / earned income (accrual accounting) We often times see accounting professionals MANUALLY entering in these details into their accounting software. Today, there are much better ways and most accounting software's support a LIVE FEED via API connection to your bank / credit card. Once you have all of your transactions, it's time to move onto step 2. STEP 2?? → CLASSIFICATIONS Now comes the time to CLASSIFY each and every transaction. Was it an office expense? A customer deposit? A legal fee? This is why it's so CRUCIAL to have a well defined chart of accounts…this is the backbone of how your financial data will appear to stakeholders. But it's not just GL accounts that you're classifying…it's: ? Vendor / customer names ? Departments ? Descriptions ? Job codes ? Receipts And these classifications aren't done by just tagging transactions…they can also be done by booking JOURNAL ENTRIES. If you aren't familiar with journal entries, they are used to adjust the balances of your accounts with DEBITS and CREDITs. When you have all of your transactions loaded into your accounting software & classified, you'll also want to perform a BANK RECONCILIATION which confirms your source data matches to the bank / credit card. STEP 3?? → PUBLISH FINANCIAL STATEMENTS OK…so you have your transactions loaded in. You have them classified. Now comes the time to PUBLISH your financial statements. The Financial Statements are: ? The Profit & Loss ? The Balance Sheet ? The Statement of Cash Flows Take a look at each of these statements. Do they make sense? Are there any big jumps? Did we miss our target by a large amount? These anomalies can help you identify quick adjustments where needed. That's our take on how financial statements get produced. What's your method? Let us know by sharing your thoughts in the comments below ?? PS: Need help streamlining your financial statement process? We can help you implement efficient systems and processes to make your monthly close smoother and faster. Learn more here: https://lnkd.in/edFqmq9B

The chart of accounts is a crucial component of any company's financial management. But what 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 statements When set up poorly they… ?? Confuse the reader ?? Don’t give an accurate picture of what’s happening ?? Make it challenging to draw insights Here are some tips for avoiding these mistakes: ?? Understand WHO the readers of the financial statements are Before 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! ?? Apply the proper balance between DETAIL and SUMMARY The readers of the financial statements should be able to grasp what’s happening with the business, with just the right level of detail… not too much, and not too less. Avoid using accounts that can be grouped into one while maintaining the same significance and avoid using accounts that are too general and would require further commentary to understand ?? Include SECTIONS Your financial statements should have a proper order so that 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 what’s happening more quickly ?? use NUMBERING Most Accounting Software will sort your chart of accounts alphabetically by default. This may not cause much of an issue, but it 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 patterns in how certain accounts are numbered ?? Set up DEPARTMENTAL TRACKING Understanding what you’re spending money on is helpful… Understanding WHO is spending that money is even more helpful That’s where departmental tracking comes in Here, you have 2 options: 1?? Utilize a “class” for each transaction 2?? Add each department as a new section on your Chart of Accounts Those are a few of our suggestions for keeping your Chart of Accounts healthy & clean What would you add? Let us know in the comments below PS: We help companies set up their Chart of Accounts and their bookkeeping. We can easily help you here: https://bit.ly/3tQTEKO

?? 12 Excel Functions You've Never Heard Of There are countless functions in the Excel library…with many new ones popping up. Stay ahead of the game and get familiar with these functions ?? ?? HSTACK =HSTACK(array1, [array2], ...) Combines arrays horizontally - perfect when you need to merge columns from different sheets into a single array. It takes your separate columns and puts them side by side automatically. ?? VSTACK =VSTACK(array1, [array2], ...) Stacks your arrays on top of each other. When you have multiple data sets that need to be combined into one, VSTACK does it in one simple command. ?? DROP =DROP(array, rows, [cols]) Removes specific rows from your data range. Whether it's stripping out header rows or removing trailing rows, it cleans your data instantly. ?? CHOOSE =CHOOSE(index, value1, [value2], ...) Pulls specific values from a list based on position. Need the third item from a range? CHOOSE(3, range) gets it done. Perfect for creating dynamic references or custom dropdown selections. ?? EXPAND =EXPAND(array, rows, [cols]) Stretches your data to fill a specified size. It repeats values to create patterns or fill templates - essential when you need to duplicate data across multiple rows and columns. ?? MAP =MAP(array, lambda) Applies a formula to every element in your array. Instead of creating helper columns, MAP processes calculations across entire ranges in one go. Perfect for bulk data transformations. ?? GROUPBY =GROUPBY(array, groupBy_array, [value_array], [operation]) Summarizes data based on specific criteria without pivot tables. It groups similar items together and performs calculations within those groups, giving you instant summary reports. ?? BYCOL =BYCOL(array, lambda) Processes calculations column by column. Want to sum each column separately? BYCOL handles it efficiently without multiple formulas. ?? BYROW =BYROW(array, lambda) Process entire rows of data with a single command. Perfect for calculating running totals or row-based metrics. ?? SCAN =SCAN(initial_value, array, lambda) Creates running calculations across a range. It tracks cumulative totals, running averages, or any progressive calculation you need across your dataset. ?? LAMBDA =LAMBDA(parameter(s), calculation) Builds custom functions directly in Excel. No VBA needed - just write your calculation logic and reuse it anywhere in your workbook. ?? PIVOTBY =PIVOTBY(values, rows, columns, [aggregate]) Creates pivot-like summaries without the complexity of pivot tables. Get grouped totals and summaries with a single function, making data analysis faster and simpler. === That's Excel's true power right there. One function can replace hours of manual work. Have you ever used any of these functions? Let us know in the comments below ??

How to Audit a Financial Model ???♂? Building a financial model is only half of the game... Most of the time, you're working with someone else's model, or you're collaborating with someone else and sharing what you put together. But how do you make your models user-friendly? And more importantly...how do you ensure the model you inherit is free of errors? Let us break it down ?? ?? Why Audit a Model? Very simple...to prevent catastrophic errors ?? Ever share a financial model with an error in it, only to have someone else notice the error before you do? It's not pretty, and it costs you a LOT in your career. ?? When Should You Audit a Model? 2 parts of the coin here: Before handing off YOUR OWN model (to a client, colleague, investor etc.) Whenever you inherit SOMEONE ELSE'S model ?? How to Build an Easy-to-Audit Model The best defense is a strong offense. Follow these 3 steps: 1?? Consolidating structure: Use a single "Model" or "Drivers" tab to consolidate inputs. 2?? Color Coding: Explain the different colors for inputs, calculations, references, and checks. We use: ?? - inputs ?? - references to other cells ? - calculation ?? - error checks 3?? Error Checks: Built-in alerts flag errors immediately. This is one of the best ways to keep your model in check. Anytime data is passed from one location to another, there should be an error check to confirm the values match. ?? What if You Inherit a Messy Model? Most of the time when you inherit a model, there isn't clear documentation. Follow these steps instead: 1?? Use 'Go To Special' to find hardcoded inputs. Press F5 → "Special" → "Constants." This will highlight all cells that should be assumptions. 2?? Spot formula inconsistencies with CTRL + /. This will highlight cells that don't match their neighbors. === These tips have helped us in our careers...but with each mistake, we've become stronger and more credible with our financial models. What tips do you have? Share them in the comments below ?? PS: Does your team waste hours trying to catch errors in financial models? We can cut that time in half and build you a foolproof audit system that prevents costly mistakes. Learn more here: https://lnkd.in/edFqmq9B

Do you know what EBITDA is? We will simplify it for you ?? If you work in Finance & Accounting… or if you’re a business owner… or an investor… EBITDA is a metric that you will hear a TON. But so often we see people confused about how this metric works… causing them to misinterpret key financial data ??♂? Let’s break it all down... Starting with: ? What is EBITDA? EBITDA's literal definition is Earnings Before Interest Taxes Depreciation Amortization ? How is EBITDA calculated? As the name implies.. Take your net income [+] Interest Expenses [+] Taxes [+] Depreciation [+] Amortization ? Why is EBITDA so important? Well.. several reasons...the 2 biggest being: ??EBITDA is commonly used to value businesses ??EBITDA is commonly used to approximate cash flows ? What are some common misconceptions about EBITDA? ?? EBITDA is not a GAAP metric That’s right…for that reason, you won’t find it on a profit and loss ?? EBITDA does not equal cash flows Your cash flows can wildly differ from one period to another when compared to EBITDA, depending on how things like accounts receivable/payable, and fixed assets come into the mix (to name a few) ?? EBITDA is not the same as net operating income While in many cases these 2 items may be the same, for some companies, they can differ An example can be if a Fixed Asset is necessary in order to carry our revenue, in which case Depreciation would be included in cost of goods sold. === Those are just a few things to note about EBITDA - there is so much more to it What would you add? Let us know by joining in on the discussion in the comments below PS: Need help with your Finance & Accounting function? Book a free call with us to discuss how we can help: https://bit.ly/47dbyWR

50 Finance terms simplified ?? Ever heard financial terms that made your head spin? ?? We're breaking down 50 finance terms so simple, a 10-year old could understand them. Let's make finance easy ?? ?? THE MONEY BASICS 1?? Compound Interest Old money makes new money. Example: Your $100 earns $10 interest. Next year, you'll earn interest on $110. 2?? ETF (Exchange-Traded Fund) Instead of buying one company's stock, you buy a basket of many companies at once. Like buying the whole grocery store instead of just one item. 3?? Mutual Fund When you pool your money with other people and a pro invests it for you. Think of it like splitting an Uber with friends - everyone pays less, but gets the same ride. 4?? Bull Market When stock prices keep going up. Picture everyone buying and feeling good about the market. 5?? Bear Market When everyone's selling and stock prices keep dropping. Think of it as a market where fear takes over and prices tumble month after month. ?? BUSINESS TERMS 6?? Market Cap How much an entire company is worth. If you wanted to buy the whole company, this is roughly the price tag. 7?? P/E Ratio How expensive a stock is compared to its earnings. Like comparing a car's price to how much money you can make using it as an Uber. 8?? Dividend Money a company pays you for owning their stock. Like getting rent payments from a property you own. 9?? Liquidity How fast you can turn something into cash. Your paycheck is very liquid. Your house isn't. ?? Blue Chip Big, stable companies everyone knows. Think Apple, Coca-Cola, Microsoft - the popular kids of the stock market. ?? INVESTING 101 1??1?? Portfolio All your investments in one place. Simply your stocks, bonds, and other investments combined. 1??2?? Asset Anything that can make you money. Could be stocks, real estate, or even that vintage Pokemon card collection. 1??3?? Liability Money you owe to others. Your credit card bill, mortgage, or that money you borrowed from mom. 1??4?? Net Worth What you own minus what you owe. If you sold everything and paid all your debts, this is what you'd have left. 1??5?? REIT A way to invest in real estate without buying actual buildings. Like owning a tiny piece of many properties at once. ?? NEED-TO-KNOW TERMS 1??6?? Cryptocurrency Digital money that exists on computers, not in banks, secured by cryptography. Like video game coins, but you can spend them in real life. 1??7?? Margin Borrowing money to invest. Using the broker's money to buy stocks - exciting but risky. 1??8?? Short Selling Betting a stock's price will go down. 1??9?? Angel Investor Early investors in startup companies. The friendly dragons from Shark Tank who give money to new businesses. 2??0?? FDIC Insurance Government promise to protect your bank money. PS: Looking for help in closing your books each month? We can help you with that, and so much more. Learn more over here: https://bit.ly/47dbyW

CEO vs CFO vs COO Ever wonder who actually does what at the top? ?? Let us break down what really happens in each seat ?? ?? CEO (CHIEF EXECUTIVE OFFICER) Company vision and strategy starts here. A CEO maps out where the business needs to be in 5 years, then builds the roadmap to get there. Board meetings? Buckle up. You'll spend half your life preparing those strategy decks. And every investor call? Better have those growth numbers ready. Executive team leadership drives results. The CEO builds teams that turn strategies into revenue. They spot talent gaps before they hurt growth. They know when to upgrade leadership to match scale. M&A? That's where things get spicy. Nothing like buying a company to speed up growth (or accidentally setting $10M on fire ??). Digital transformation focus? Big moves here. Innovation strategy means picking which emerging tech actually drives revenue. Not just chasing shiny objects. Technology investment approval focuses on ROI timelines. The CEO needs to know if that $2M software investment pays back in 12 months or 36. Digital culture development means changing how teams work. Moving from spreadsheets to real-time dashboards. Shifting from weekly reports to daily metrics. ?? CFO (CHIEF FINANCIAL OFFICER) The money wizard. The risk spotter. The one who keeps us all from going broke. Financial strategy isn't just fancy Excel models. It's knowing exactly when you'll run out of cash... preferably before it happens. Risk management? That's spotting the disasters before they hit. Like that vendor who's one bad quarter away from bankruptcy. And don't get us started on investor relations. Nothing like explaining to the board why that "guaranteed" contract slipped another quarter. Digital game is strong here: Making payment systems work in 30 countries Finding which software subscriptions actually do something Turning 15-day closes into 5-day sprints ?? COO (CHIEF OPERATING OFFICER) The execution master. The problem solver. The one who turns big dreams into daily wins. This person lives in the metrics. Order rates, response times, schedules - they know when something's off before anyone else. Team development? They're like a chess master, moving people where they create the most value. Supply chain management is their art form. They know which backup vendors to call when things go sideways. Digital transformation gets real: Automating everything that doesn't need a human Making all systems talk to each other Turning customer feedback into actual improvements ?? BACKGROUND REQUIREMENTS Want one of these seats? Here's what you need: CEO: MBA plus 15+ years running P&Ls. Proven track record scaling businesses. CFO: CPA, MBA, 10+ years in finance. Big 4 background shows you know the details. COO: MBA with 10+ years operations experience. Must have scaled teams from 100 to 1,000+. What role matches your strengths? Drop it in the comments below ??

In a previous post, we talked about how to improve your cash flows Today, we will share the 21 Types of Revenue (and what they mean) with you 1?? Subscription Revenue Recurring revenue from customers “subscribed” to your service 2?? Product Revenue Revenue from product sales 3?? Implementation & Setup Revenue Revenue from special projects related to onboarding, oftentimes in the first few months 4?? Affiliate Revenue Revenue from affiliates 5?? Sponsorship Revenue Revenue from sponsors, often times used with conferences 6?? Gross Revenue Revenue before discounts/refunds/rev share 7?? Net Revenue Revenue any adjustments, such as discounts, refunds, rev share 8?? Expansion revenue Added recurring revenue from existing customers 9?? Contraction revenue A reduction in recurring revenue from existing customers ?? Marketplace revenue (Gross merchandise value) Gross revenue prior to any marketplace adjustments 1??1?? SaaS Revenue Revenue from Software as a Service (often times recurring) 1??2?? Monthly recurring revenue Revenue customers have committed to on a recurring monthly basis 1??3?? Annual recurring revenue Revenue customers have committed to on a recurring annual basis 1??4?? Pay per usage revenue Revenue-based off of the actual usage of an activity (like AWS) 1??5?? Licensing revenue Revenue from licensing an asset 1??6?? Interest revenue (more commonly referred to as interest income) Revenue from a loan 1??7?? Grant revenue Revenue from a grant, oftentimes by the government 1??8?? Other revenue A catchall for revenue that isn’t core to a business 1??9?? Multi-year revenue Revenue on a deal that has been committed to over multiple years 2??0?? Premium revenue (gross premium) Revenue from charged premiums, most often found with insurance 2??1?? Partnership revenue Revenue from partnerships - examples can be referral fees, rev shares === Did we miss any? Let us know in the comments below PS: Do you need help with forecasting revenue? We can definitely help you here https://bit.ly/3tQTEKO

20 profit ratios that will transform how you analyze any business The numbers never lie, but you need to know how to read them ?? Let us break down the most critical financial metrics you'll ever need ?? ?? CORE PROFITABILITY RATIOS These ratios tell you exactly how well a business turns revenue into profit: 1?? Gross Profit Margin The foundation of business profitability - what's left after direct costs. When this number drops, it's often the first sign of pricing pressure or rising material costs. 2?? Operating Profit Margin This strips away the noise and shows pure operational performance. Want to know if a business is actually good at what it does? This ratio tells you. 3?? Net Profit Margin The bottom line that matters. Shows exactly what you're left with after everything's paid. 4?? EBITDA Margin Strips out accounting decisions to show true operational performance. Critical for comparing companies with different capital structures. ?? RETURN RATIOS - THE REAL PERFORMANCE INDICATORS 5?? Return on Equity Your shareholders' report card. This number can make investors either jump for joy or run for the hills. 6?? Return on Assets Shows how well a company uses its assets to generate profits. This ratio becomes crucial when comparing asset-heavy industries. 7?? Return on Capital Employed The heavyweight champion of performance metrics. It's like ROE and ROA had a super-smart baby. ?? EFFICIENCY RATIOS Now we're getting to the good stuff… 8?? Asset Turnover Reveals how efficiently a company generates sales from its assets. Higher ratios usually mean better operational efficiency. 9?? Inventory Turnover Critical for retail and manufacturing - shows how quickly inventory moves. Lower numbers might signal obsolete stock or poor purchasing decisions. ?? Accounts Receivable Turnover Measures how fast a company collects what it's owed. This ratio directly impacts cash flow - the lifeblood of any business. ?? MARKET PERSPECTIVE RATIOS 1??1?? P/E Ratio The market's expectation of growth packed into one number. But remember - high P/E isn't always better. It's about whether the company can meet those expectations. 1??2?? EPS Growth Shows the rate of earnings growth per share. This becomes powerful when tracked over multiple quarters. === Three principles we always follow when using these ratios: Compare within industries - ratios mean different things in different sectors Look for trends - a single number means nothing without context Use multiple ratios - they work together to tell the complete story Which ratio do you find most valuable in your analysis? Share your thoughts in the comments below ?? PS: Need help understanding these financial metrics for your business? We specialize in financial analysis and can help you implement these ratios to transform your business decision-making. Learn more here: https://lnkd.in/dyQDSbD2