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Year 0Year 1Year 2Year 3
Definition / Examples
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The Three Financial Statements
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Income Statement (also called Profit and Loss, or "P&L")
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Revenue$100 $120 $144
Money coming in from sales
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% Growth20.0% 20.0%
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(-) Cost of Goods Sold($50)($60)($72)
"Cost to produce": Materials and labor to make or deliver the product
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% of Revenue50.0% 50.0% 50.0%
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Gross Profit$50 $60 $72
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% Gross Margin50.0% 50.0% 50.0%
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(-) Operating Expenses($20)($24)($29)
"Cost of doing business": Insurance, marketing, selling expenses
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% of Revenue20.0% 20.0% 20.0%
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Operating Profit$30 $36 $43
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% Operatign Margin30.0% 30.0% 30.0%
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(-) Depreciation($5)($5)($5)
"Using up" your assets
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(-) Interest-- -- --
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Taxable Income$25 $31 $38
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(-) Taxes($9)($11)($13)
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% Tax Rate35.0% 35.0% 35.0%
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Net Income$16 $20 $25
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Cash Flow Statement
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Net Income$16 $20 $25
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(+) Depreciation$5 $5 $5
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(+/-) Net Working Capital-- -- --
"Timing adjustments": revenue collection, vendor payment
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Operating Cash Flow (A)$21 $25 $30
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(-) Capital Expenditures($10)($12)($14)
Equipment purchases: laptops, cameras, machinery
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Investing Cash Flow (B)($10)($12)($14)
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(-) Debt Repayment-- -- --
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(+) Owner Investment-- -- --
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Financing Cash Flow (C) -- -- --
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Beginning Cash Balance$5 $16 $29
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Net Cash Flow$11 $13 $16
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Ending Cash Balance (A+B+C)$5 $16 $29 $45
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Balance Sheet
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Assets
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Cash Balance$5 $16 $29 $45
Business bank account
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Accounts Receivable-- -- -- --
How much customers owe you
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Inventory-- -- -- --
How much product you have ready to sell
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Current Assets$5 $16 $29 $45
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Net Property, Plant, & Equip.$10 $15 $22 $31
Total assets in your business, less depreciation
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Total Assets$15 $31 $51 $76
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Liabilities & Owner Equity
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Accounts Payable-- -- -- --
How much you owe vendors
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Current Liabilities-- -- -- --
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Debt Obligations-- -- -- --
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Total Liabilities-- -- -- --
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Retained Earnings-- $16 $36 $61
Accumulated 'accounting' profit of the business
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Owner Equity$15 $15 $15 $15
Total investment in the business
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Total Owner Equity$15 $31 $51 $76
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Total Liabilities & Owner Equity$15 $31 $51 $76
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Total Assets = Total Liabities & Equity? TRUE TRUE TRUE TRUE
Total Assets must always equal Total Liabilities & Equity (balance sheet)
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