FINANCE FOR

NON-FINANCIAL STAFF
DEFINITIONS Balance sheet
$
2022 2023 Change Profit and Loss Account
$
Revenue
2022

10,000
2023

11,000
Change

1,000
Cash flow statement
$
2022 2023
FINANCIAL RATIOS
Intangible assets 100 200 100 COGS variable 6,000 6,600 600
Net income 1,190 1,390
Tangible assets 300 400 100 COGS fixed 200 200 0
BALANCE SHEET Other investments and assets 100 150 50 COGS 6,200 6,800 600
Depreciation and amortization 100 100 DEFINITION
Non-current assets 500 750 250 Impairment of receivables 10 10
A financial statement that provides a snapshot of a Gross profit 3,800 4,200 400
Impairment of inventories 10 10

company's financial position at a specific point in

Inventories 200 300 100
Overhead - variable 1,000 1,100 100
0
Losses (gains) from sale of non-current assets, net 70 40 Financial ratios are quantitative metrics used to
Account Receivable 450 500 50 (Incerease) or decrease of other current assets (100) (60)
time. It presents a summary of a company's assets, Other current assets 100 150 50
Overhead - fixed 1,000 1,100 100
(Incerease) or decrease in account receivables (250) (60) analyze and assess the financial performance,
Overhead costs 2,000 2,200 200
liabilities, and shareholders' equity. The balance sheet Cash 175 1,290 1,115 0
(Incerease) or decrease in inventories
Increase (decrease) in trade payables
(120)
(120)
(100)
250
health, and stability of a company. These ratios are
Current assets 925 2,240 1,315
follows the fundamental accounting equation: Assets
Gains from sale of non-current assets
Losses from sale of non-current assets
50
120
50
90
0
(30)
Increase (decrease) in other liabilities (100) 25 derived from the financial statements and provide
= Liabilities + Shareholders' Equity.
Total assets 1,425 2,990 1,565 Impairment of receivables 10 10 0
CF from operating activities 690 1,605
insights into various aspects of a company's
0
operations, profitability, efficiency, liquidity, and
Impairment of inventories 10 10 0
Equity 500 1,790 1,290 Sales of non-current assets 200 125
Other 190 160 (30)
Purchase of non-current assets 650 515
PROFIT AND LOSS Long term financial debt 250 250 0 CF from investing activities (450) (390) solvency. Financial ratios are widely used by
EBITDA / Operating profit 1,610 1,840 230
Other long term liabilities 250 250 0 Depreciation and amortization 100 100 0 investors, analysts, and stakeholders to evaluate the
A financial statement that summarizes a company's Long term fin. liabilities 500 500 0 Increase of share capital
Increase (decrease) in financial liabilities
0
(70)
100
0 financial position and make informed decisions.
EBIT 1,510 1,740 230
revenues, expenses, gains, and losses over a specific Trade payables 100 350 250 Dividends paid (45) (200)
CF from financing activities (115) (100)
period, usually a fiscal quarter or year. It shows the Financial liabilities
Other liabilities
200
125
200
150
0
25
Interest and financial expenses 50 50 0
ROE (PROFITABILITY)
Financial income 10 10 0
company's net income or net loss by subtracting Current liabilities 425 700 275 EBT 1,470 1,700 230
Total cash flow
Cash at the beginning of period
125
50
1,115
175
expenses and losses from revenues and gains. Total Equity and liabilities 1,425 2,990 1,565
Tax
Net income
280
1,190
310
1,390
30
200
Measures a company's profitability and efficiency in
Cash at the end of period 175 1,290
generating profits from the shareholders' equity
CASH FLOWS
Net income / Shareholders' Equity
Cash flow refers to the movement of money into and
out of a business over a specific period. Positive cash
flow means more money is coming in than going out,
3 BASIC FINANCIAL STATEMENTS AND ITS RELATION CURRENT RATIO
while negative cash flow indicates more money is The current ratio measures a company's ability to
being spent than earned. cover its short-term liabilities with its short-term
assets
PROFITABILITY
BALANCE SHEET PROFIT AND LOSS CASH FLOWS Current assets / current liabiiltes
Profitability refers to the ability of a business or
investment to generate profits or financial gains. It
measures the extent to which a company's revenues QUICK RATIO
NET PROFIT
exceed its expenses and costs, resulting in a positive EQUITY REVENUES
net income. The quick ratio (also known as the acid-test ratio)
NET MARGIN RETAINED + DEPRECIATION evaluates a company's ability to meet short-term
FIXED ASSETS EXPENSES obligations using its most liquid assets.
Financial ratio that indicates the percentage of EARNING
revenue that remains as net profit after deducting all +/- CHANGE IN ASSETS
PROFIT BEFORE TAX (Current assets – inventoris) / current liabilities
expenses, including COGS, operating expenses, LONG-TERM
interest, taxes, and other non-operating costs. It CURRENT ASSETS LIABILITIES CASH FLOW
TAX DSO
measures the profitability of a company's operations SHORT-TERM
and reflects how effectively it manages its costs and Days Sales Outstanding (DSO) calculates the
CASH LIABILITIES NET PROFIT CASH BALANCE
generates profit. average number of days it takes for a company to
GROSS MARGIN collect payment from its customers for sales made
on credit.
A financial metric that represents the percentage of
revenue remaining after deducting the cost of goods Average Account receivable / Revenues * 365
sold (COGS). It measures how efficiently a company
produces its products or services and is a key
DIO
indicator of its profitability at the most basic level. FINANCE DEPARTMENT ORGANIZATION Days Inventory Outstanding (DIO) measures the
EBITDA average number of days it takes for a company to
sell its inventory.
EBITDA stands for "Earnings Before Interest, Taxes,
Depreciation, and Amortization." It is a financial
CFO
Average inventories / COGS * 365
metric that measures a company's operating
performance and profitability by excluding certain DPO
non-operating expenses and non-cash items. EBITDA
provides a clearer picture of a company's core Days Payable Outstanding (DPO) determines the
operating profitability and cash flow generation. Poicy and
ACCOUNTING CONTROLING TREASURY Risk average number of days it takes for a company to
audit pay its suppliers.
NET PROFIT
Average trade payables / COGS *365
The difference between total revenues and total costs
Financial Financial Financial Preparaton of
OPERATING PROFIT CCC
accounitng, planning, analysis, operations, cash procedures, Financial risk
Financial metric that represents the profit generated
bookkeeping, tax, budget, resource management, internal audit management
from a company's core operations before deducting The Cash Conversion Cycle (CCC) represents the
preparation FS planning collection conducting
interest and taxes. time it takes for a company to convert its
REVENUES investments in inventory and other resources into
cash flow from sales.
Revenues are defined as the inflows of VERTICAL FINANCIAL ANALYSIS TERMS COMPARISON
economic benefits arising from the ordinary
DIO+DSO-DPO
Activities of an entity when those inflows Vertical analysis 2024 2025 2026 2027 2028

result in an increase in equity, other than $

CASH BASIS vs ACCURAL BASIS ASSET TURNOVER
increases relating to contributions from equity Revenues 100% 100% 100% 100% 100% Cash basis accounting recognizes Recognizes revenues and expenses Asset turnover measures a company's efficiency in
participants COGS variable 60% 60% 60% 60% 60%
revenues and expenses when cash is when they are earned or incurred,
COGS fixed 2% 2% 2% 2% 2% utilizing its assets to generate revenue.
FIXED ASSETS COGS 62% 62% 62% 62% 62% received or paid. regardless of when cash is received or
What company owns like property, plants, equipment, Revenue is recorded when cash is paid. Revnue / Assets
Gross profit 38% 38% 38% 38% 38%
intellectual property, shares in associate companies, received from customers, and expenses Under this method, revenue is
etc. Overhead - variable 9% 12% 12% 12% 12%
are recorded when cash is paid to recorded when goods or services are EBITDA COVERAGE
CURRENT ASSETS Overhead - fixed 10% 10% 10% 10% 10%
suppliers or vendors. delivered or completed, and expenses
Overhead costs 19% 22% 22% 22% 22%
Assets that is expected to be converted in cash in are recognized when they are incurred, EBITDA to interest coverage ratio evaluates a
period less than 1 year, such as account receivable, EBITDA / Operating profit 18% 15% 14% 15% 16%
irrespective of cash flow company's ability to cover its interest expenses with
inventories. Depreciation and amortization 2% 3% 3% 3% 3% DEBIT vs CREDIT its earnings before interest, taxes, depreciation, and
EQUITY Interest and financial expenses 0% 0% 0% 0% 0%
Debits are recorded on the left side of Credits are recorded on the right side amortization
Financial income 0% 0% 0% 0% 0%
Equity is calculated by subtracting a company's total EBT 16% 12% 11% 12% 13% an account. of an account.
liabilities from its total assets They increase asset accounts and They increase liability and equity EBITDA / Interest expenses
Tax 2% 2% 2% 2% 2%
LIABILITIES decrease liability and equity accounts. accounts and decrease asset accounts.
Financial obligations or debts that a company owes to Net income 14% 10% 9% 10% 11% Debits are used to record increases in Credits are used to record increases in EBITDA MARGIN
external parties. They represent the company's legal expenses and losses. revenue, income, and gains. EBITDA margin represents the percentage of
or financial responsibilities that need to be fulfilled in In general, debits represent the flow of In general, credits represent the flow of revenue that remains as after deducting all
the future DISCOUNTING value into an account. value out of an account. operating expenses, indicating the company's
LIQUIDITY operating profitability.
Discounting is process of determining the present value of EFFICIENCY vs EFFECTIVENES
Ability of company, to convert assets into cash quickly future cash flows or a future sum of money by adjusting it Efficiency refers to the ability to Relates to the degree of achieving or EBITDA / Revenues
and without significant loss in value and pay its for the time value of money. The time value of money accomplish a task, process, or activity fulfilling a desired objective, goal, or
current liabilities in time recognizes that a dollar received in the future is worth less in the most optimal and resource- outcome. It emphasizes the extent to NET PROFIT RATE
KPIs than a dollar received today due to factors such as efficient manner. It focuses on which the desired results or intended
Key Performance Indicators, are quantifiable metrics inflation, opportunity cost, and risk. minimizing waste, reducing costs, and targets are met. Effectiveness is about Net profit rate (also known as net profit margin or
used to measure and evaluate the performance and Discounted Cash Flows 2024 2025 2026 2027 2028 maximizing output or results while doing the right things and ensuring net profitability) measures the percentage of
progress of an organization or specific activities utilizing the least amount of resources, that the desired outcome or purpose is revenue that remains as net profit after deducting
Net income 1,055 1,086 1,088 1,167 1,159 such as time, money, or materials achieved successfully
within it. KPIs are used to assess how effectively an all expenses, including taxes and interest, reflecting
organization is achieving its goals and objectives Depreciation and amortization 235 235 275 275 275 CASH FLOW vs EBIT the company's overall profitability.
Net Working capital adjustments (106) (7) (8) (8) (9) Cash flow is concerned with the EBIT represents the operating
CAPEX adjustments (570) 0 (200) 0 0
CAPEX movement of actual cash in and out of profitability before considering interest Net income / Revenues
Free Cash Flow 613 1,314 1,155 1,434 1,424
Funds invested by a business to acquire, upgrade, or Discount factor 1.1342 1.2864 1.4590 1.6548 1.8768 the company. ash flow provides a more and taxes
maintain long-term assets that are expected to direct measure of a company's ability EQUITY RATIO
DCF 541 1,021 792 866 759
generate benefits or revenue over an extended to generate and manage cash
period. CAPEX vs OPEX Equity ratio compares the company's total equity to
OPEX EBITDA Multiple valuation Capital expenditures in Balance sheet Recognized in P&L and incurred for its total assets, expressing the proportion of assets
EBITA non-adjusted 1,629 involve significant investments in day-to-day operations. Those are funded by equity and indicating the company's
Ongoing expenses that a business incurs to operate financial leverage and stability.
and maintain its day-to-day activities. It represents assets that have a long-term impact on regular operating business expenses
Non operating items 75
the costs necessary to keep a business functioning on One-time items 20 the business such as payroll, marketing
vs Equity / total liabilities
a regular basis, excluding any investments or capital Asset impairments (reversal) 15 SHORT TERM LONG TERM
GAAP adjustments (30)
expenditures IC fair prices adjustment 25 DEBT RATIO
Adjustments 140 Due less than 1 year Due in more than 1 year
EBITDA adjusted 1,769 Debt ratio assesses the proportion of a company's
ROI
total debt relative to its total assets, providing
It is a financial metric used to measure the Valuation 11,499 BALANCE SHEET vs PROFIT & LOSS insight into the company's financial risk and
profitability and efficiency of an investment. ROI is Cash on hand 1,376 Helps stakeholders assess the financial Provides insights into a company's dependency on debt financing.
Interest bearing debt 450
calculated by dividing the net profit from an Net financial position 926 health, liquidity, and solvency of a operational performance, profitability,
investment by the initial cost of the investment and company. and ability to generate consistent Total liabilities / Assets
expressing it as a percentage. Valuation adjusted 12,425
earnings.

CREDITS TO | Bojan Radojicic robojan.gumroad.com FREE Finance Resources