micro MBA covers an entire MBA in less than five hours!

Let's start with the basics.

Business skills can be divided into two main categories: Numbers and Words.  Our job is to continually develop our skills in both areas. 

You will see that all the following Sections either deal with numbers, words, or both. 

Finally understand the numbers side of Business. 

Verbal and written communication skills are essential to deliver and understand information. Being able to communicate effectively is a vital life skill.

Listening is a crucial and overlooked communication skill. Listen to understand.

"Most people do not listen with the intent to understand; they listen with the intent to reply." Stephen R. Covey.

We have two ears and one mouth so that we can listen twice as much as we speak.

Download my book MBA ASAP and use it as a reference throughout the entire program and for your future reference.

30+ Best AI tools to 10x Productivity!

AI is the future. All should take AI seriously.

Excel is a versatile and indispensable tool for business, finance and investment professionals. Its importance cannot be overstated, as it is used in a wide range of financial tasks, from data analysis to financial modeling and reporting.

1. Financial Analysis and Reporting: Excel enables finance professionals to sort, analyze, and visualize data to identify trends, perform variance analysis, and forecast future financial scenarios. It supports using pivot tables, advanced formulas, and various graphing tools, which are crucial for creating detailed financial reports.

2. Financial Modeling: Excel is widely used for financial modeling, allowing analysts to build models that can predict income, budgeting, cash flow, and other financial projections. Using advanced functions and creating flexible, dynamic models is critical to making informed business decisions.

3. Excel Proficiency is a Game-changer for finance professionals, significantly boosting productivity by saving time. The ability to automate tasks with macros, handle complex calculations with ease, and manage large datasets efficiently are just a few ways Excel streamlines financial tasks.

4. Excel is not just a tool; it's a universal language in the finance industry. Mastery of Excel is often a prerequisite for many finance roles, making it an indispensable skill for job proficiency and career advancement.

5. Decision Making: Excel helps finance professionals in decision-making processes by providing a platform to work through various financial scenarios and analyze potential outcomes. What-if analysis and sensitivity tables are instrumental in this regard.

6. Accuracy and Precision: Excel's precision in handling financial data is critical. A single error can result in significant financial discrepancies; thus, the ability to use Excel to manage and cross-check numbers accurately is vital.

7. Integration and Compatibility: Excel can integrate with many business applications and databases, making it an effective tool for consolidating information from various sources for financial analysis and reporting.

Knowing Excel in finance is not just about understanding the basic features; it involves a deep understanding of its advanced capabilities, which are essential in the sophisticated world of finance.

Excel proficiency is a foundational skill that enables finance professionals to perform their roles effectively and efficiently, whether running regressions, building a discounted cash flow model, or analyzing complex datasets.

Download the MBA ASAP Ultimate Excel Handbook and level up your skill set.

Vlookup vs. Hlookup vs Xlookup

Learn the most popular Excel functions and which ones to use when

Lookup functions are REALLY popular in Excel.

Because they allow you to “lookup” a value from a dataset based on the criteria that you enter.

Most people only focus on Vlookup without realizing that there is a far more powerful lookup function called Xlookup.

Let’s explore these three lookup functions and become a pro:

VLOOKUP

How it works → Searches VERTICALLY in the first column of a specified range and returns a value in the same row from a column you specify.

Syntax → =VLOOKUP(lookup_value, table_array, col_index_num, [range_lookup])

Pros →Easy to use for vertical lookups, Supported in all versions of Excel.

Cons → Limited to vertical searches, Searches must start in the first column of the range.

My take → VLOOKUP is probably the most common lookup function, but it’s sooo limited. Learn to ditch this function and focus on XLOOKUP!

HLOOKUP

How it works → Searches HORIZONTALLY in the first row of a specified range and returns a value in the same column from a row you specify.

Syntax → =HLOOKUP(lookup_value, table_array, row_index_num, [range_lookup])

Pros → Useful for horizontal lookups, Supported in all versions of Excel.

Cons → Limited to horizontal searches, Inefficient with large datasets.

My take → HLOOKUP isn’t as popular as VLOOKUP but is very similar. As mentioned above, while this may get the job done, there is a bigger and better option with XLOOKUP.

XLOOKUP

How it works → Searches for a value in an array or range in EITHER DIRECTION and returns a value from a corresponding array or range.

Syntax → =XLOOKUP(lookup_value, lookup_array, return_array, [if_not_found]

Pros → Can search in any direction, Allows for the return of an array, and provides an option for a default value if no match is found, which is very efficient.

Cons → Only available in Excel for Office 365, Excel 2019, and later versions, can be complex.

My take → XLOOKUP solves all the issues that VLOOKUP and HLOOKUP have, and it will gradually take over the Excel lookup universe.

What makes this even more powerful is nesting another XLOOKUP inside your XLOOKUP, which allows you to find the value with both your X and Y axes.

I'm starting this micro mba curriculum with an exploration of entrepreneurship because a startup is a microcosm of business that is focused on the essentials.

Entrepreneurs are searching for product/market fit, and a Startup is an organization in search of a sustainable business model. 

That is the essence of every business enterprise: a business model that works and a fit between your product and customers. 

And in this rapidly changing and evolving business landscape, driven by technology and customer expectations, every company needs to be constantly re-evaluating their position and offerings and thinking entrepreneurially.

For these reasons, entrepreneurship tools and techniques are a sensible launching platform for gaining context and intuition into all business activities.

Let's get started!

Entrepreneurship and Startups

Value creation is the first general topic we will explore. At the core of every business is a value proposition. It is made of products and services that people want, need, or desire.

Value creation is the essence of entrepreneurship. The playbook of creating value while managing risks and increasing the probability of success has developed in Silicon Valley in the past few decades.

Many of us aspire to create something new; do original work; make an impact, and help people solve their pressing needs. We have all heard of the entrepreneurial heroes like Steve Jobs, Bill Gates, and Elon Musk. We use and benefit from the tools, products, and services that they created.

If you harbor hopes of doing something similar, making your dent in the universe, here is where you can get a quick handle on the latest thinking and processes for turning your dreams into reality and creating sustainable, profitable businesses.

I'm starting this overview of business administration with a study of entrepreneurship because entrepreneurs are searching for product/market fit.

Achieving product/market fit is the cornerstone of any successful business enterprise.

What you want to sell has to fit a customer need. The total of those potential customers is the market.

A Startup is a temporary organization in search of a sustainable business model.

That is the essence of every business enterprise: a business model that works and fits your product and customers.

In this rapidly changing and evolving business landscape, driven by technology and customer expectations, every company needs to be constantly re-evaluating their position and offerings and thinking entrepreneurially. That mindset and practice is the goal of strategic thinking, planning, and execution.

We, and our enterprises, need to be adaptable. As Reid Hoffman said, "In times of change and uncertainty, adaptability creates stability.'

For these reasons, entrepreneurship tools and techniques are a sensible launching platform for gaining context and intuition into all business activities.

Entrepreneurial thinking is about taking ideas and making them into products or services that meet the needs and wants of customers. Lets call the product/service mix P/S for short. The incubation of ideas into concrete P/S is performed in a startup.    

The key criterion of the P/S is that it meets some need or want of a group of potential customers. The pool of potential customers is referred to as the market. The function of a startup is the search for product/market fit.    

A startup is not a mini version of an existing enterprise. Startup is a temporary organization in search of a repeatable, sustainable, scalable Business Model. The goal of a startup is to evolve itself out of existence and into a company. A startup is a caterpillar and the resulting company is the butterfly. 

Here are some business model questions from Seth Godin. If you get them right, everything else is easier:

· How will you get new paying customers?

· Why will your paying customers tell their friends and colleagues?

· Will this business work at a scale that you can both achieve and are happy living with?

· Is it easy to start?

· If it is, what will keep others from starting it?

· How do you avoid a race to the bottom where you’re trapped making a cheap commodity as a middleperson?

· Will it get easier as you go? Why?

· What incentive do customers have to stick with you instead of switching to a cheaper or more convenient choice?

Businesses that are cheap to start, depend on providing a useful service at a cheap margin and are largely fungible are often difficult to turn into thriving sustainable enterprises.

Customer traction, the network effect and emotional connection can change this, particularly if you build them in from the start.

Ex Nihilo

Ex nihilo is a Latin phrase meaning "out of nothing". It often appears in conjunction with the concept of creation, as in creatio ex nihilo, meaning "creation out of nothing"   

That is what entrepreneurship and startups deal with: creating something out of nothing.  We are looking to create something that fits a need, something of value. We do it for a profit so that the process is scalable, meaning it can grow.    

Peter Thiel, the co-founder of PayPal and the first outside investor in Facebook, wrote a book about entrepreneurship called Zero to One based on this premise of going from nothing to something; that the act of creation is singular and incredibly worthwhile.

The Business Model Canvas

The Business Model Canvas (BMC) is a simple and quick way to think about and grasp the major parts of any business. The BMC is a template used to organize our thinking around developing business models.    

A Business Model outlines how a company creates value for itself by delivering products and services to customers for revenue and profit.    
   

The Business Model Canvas is a visual chart with elements describing a firm's offering, customers, infrastructure and finances. It is comprised of nine interrelated elements:   

       o  Value Proposition

·      Customers   

      o  Customer Segments   

      o  Channels   

      o  Customer Relationships   

·      Infrastructure   

      o  Key Resources   

      o  Key Activities   

      o  Partner Network   

·      Finances   

      o  Cost Structure   

      o  Revenue Streams
    

Thinking about an enterprise, whether it is one you want to start or an existing one, can get complicated. We need a tool that can overlay any business situation and ask the basic questions about how it is structured, what is being offered and to whom. This tool is the Business Model Canvas.  It helps us keep the whole picture of the business enterprise in our mind so we can evaluate it, test it, and make productive changes.

The Business Model Canvas is where we capture our best guesses about the key business elements and turn them into facts by testing them against potential customers in our search for a viable Business Model. We will look at this testing and searching process in the next section Lean Startup Methodology. But first lets look at the nine elements of the Business Model Canvas in more detail.

Business Model Canvas

The Nine Elements

Value Proposition: What are you building and for whom? Here we need to be careful not to be overly product or technology focused. It’s all about perceived value to customers. In order to be in business, we have to be solving a customer problem or satisfying a customer need.     

Customer Segments: You exist for them and you need to understand them in detail: who they are and why they would buy.    

Channels: How you deliver your Value Proposition to your Customer Segments. Its about logistics, distribution and communication; how do you sell and deliver. Pre 1990s channels were all physical: stores, sales people, and warehouses. Now there are virtual channels as well: Web, Mobile, Cloud and digital downloads and streaming services.    

Customer Relationships: How do you get, keep and grow customers. This is the role of Marketing and, as we will see in the Growth Hacking section, these customer engagement attributes are becoming baked-in to products and services. The first stage is Customer Acquisition where we activate customers to do something through calls-to-action. Next we want to keep them and not lose them to competitors. Then we want to grow them by giving them compelling reasons to spend or use more of what we offer.    

Key Resources: What do you need to make the Business Model work? What are the working capital requirements? What physical resources are required for fulfillment: manufacturing, machines, inventory, and delivery trucks. What Intellectual Property is needed: patents, customer lists. What are the Human Resources needed?    

Key Partners: Strategic alliances, joint ventures, and suppliers.    

Key Activities: What are the most important things the company must do to make the Business Model work? Is it Production, making something or Problem Solving like consulting or engineering, or Supply Chain Management? What do you need to become expert at?   

Costs: What are the costs and expenses to operate the business? What is the cost structure of the product/service? What are the fixed and variable costs? Are there economies of scale and scope? What are the most expensive resources and activities as a percent of the budget?   

Revenue Streams/Models: How do you make money from your product/service being sold to customers? What value are customers paying for? What is your strategy to capture value: direct sales, subscription, or freemium? What are you pricing tactics?   

The Product-Market Fit Framework by Sequoia Capital

Finding product-market fit is the central quest of every early-stage startup.

Rather than diagnosing whether you have product-market fit, this framework outlines three archetypes of PMF that help you understand your product’s place in the market and determine how your company operates.

Ultimately, product-market fit is about your product’s place in the world. 

The Value Proposition Canvas (VPC) expands on the relationship between the Value Proposition and Customers.  The goal is achieving a fit between what you are offering, the value proposition, and what customers want and need.  We call this Product/Market Fit. 

The VPC helps you create the value your customers want by organizing, mapping, and matching the dimensions of your customer’s needs and your product’s feature set.     

The VPC is a simple way to understand your customer’s needs, and design products and services they want. It works in conjunction with the Business Model Canvas.

The Lean Startup Methodology is a way to bring analytical rigor and a systematic process to understanding and refining a new venture or growing enterprise and making it successful. Lean Startup reduces the risk of failure and ups the odds of success. Lean startup has become incredibly popular because of how effective it is. It was developed and promulgated by Steve Blank and Eric Ries.    

The Lean Startup Methodology applies the Scientific Method to venture development. It starts with a set of hypothesis (guesses) about the various elements of the business model, tests them against customer expectations, and revises and refines them based on the feedback.    

There are three basic components of Lean Startup methodology:   

·      Business Model Design   

·      Customer Discovery   

·      Agile Development   

Lean Startup is an iterative process searching for a Business Model that is stable, reproducible and sustainable. The goal is to develop a Business Model that works over and over, each and every day and that is scalable. This means that there is a profit or net income relative to sales. If you put one dollar in, you get two out. This is the mechanism and model that allows a business to thrive and grow.    

The first step is to fill out the Business Model Canvas. As you fill out the Business Model Canvas you end up with a series of thoughtful first guesses about:   

·      Who do we think our customers are?   

·      What are we making for them?   

·      How much to charge?   

Odds are these initial guesses are wrong but it’s a great first step. Next we will change those guesses into facts through the Customer Development process.    

Lean Startup Process

Crafting a viable Business Model is an iterative process of exploring the relationship and engagement between your core product/service features and feedback from potential customers. 

The goal of this process is to achieve Product/Market Fit. This is where your product or service offering resonates deeply with a customer base and they can’t get enough of it even in its limited prototype configuration.  The two components of this process of moving towards product market fit are a Minimum Viable Product (MVP) and Customer Discovery.    

The Value Proposition Canvas and mapping we discussed above is a great tool to help formalize this process

We want to perform this process Lean, meaning we want to conserve our limited resources in this exploration and discovery phase. We need lean discipline in order to deploy our resources in a way that allows us to refine our offering in the face of customer feedback until we hit on a truly compelling match. We need money to go back to the drawing board.

Most startups fail because they run out of money. We want to limit that risk. In order to run lean, we develop our prototypes with just the core essential features and present that to customers ASAP in order to get feedback.  This is the MVP idea. Get something meaningful in front of potential customers and start the learning and refining process. The MVP can be a website splash page, a PowerPoint slide, a wireframe or cardboard mockup, or a working prototype. It needs to embody a feature set that customers can respond to, but little more, so it can be changed, tuned and calibrated to meet customer needs.    

This type of development process is called Agile Development. It’s a set of engineering principles designed to quickly iterate around feedback from customers.  Also check out other development frameworks like TRIZ, Scrum, and Six Sigma.    

Customer Development is about by getting out and talking with potential customers, partners, and vendors centered on presenting the MVP and getting feedback. We do this, not in a random way, but with some rigor and a process:   

1.   Design Experiments   

2.   Get Data   

3.   Get Insights   

4.   Rinse and Repeat   

By keeping the development costs low and lean and focusing on learning from customers we can course correct, iterate, pivot, or persevere in search of the holy grail of Product/Market Fit and a viable, scalable Business Model.    

When you have achieved this goal, then you are ready to write a business plan, negotiate funding, and build a company! 

The OODA Loop is a tool for better decision-making. The OODA Loop refers to the decision cycle of observe, orient, decide, and act, developed by military strategist and U.S. Air Force Colonel John Boyd. 

It has been adopted by entrepreneurs as a learning tool and method for dealing with uncertainty. The OODA loop concept complements the Lean Startup methodology in customer discovery, assessing MVP feature sets, and product/market convergence. Use the OODA Loop approach to course correct as you iterate forward.

CENTS Framework

MJ DeMarco, author of the book "The Millionaire Fastlane" developed the CENTS framework. The CENTS framework helps in evaluating ideas before jumping into them.

The more of the five commandments an idea meets, the more likely the business idea is to be successful.

C —Control:

Make sure that no one entity, source of income, or business can dictate your future. Being reliant on a single platform, supplier, or customer could be the source of this vulnerability. Do you think starting a YouTube channel is a good business to build wealth that can change your life, for instance? YouTube, however, has the authority to suddenly change the terms or ban you from the site. It's over. The same holds true for every other platform, including Facebook, Twitter, Medium, and Google.

Your website and email list are examples of assets you own and control. B e sufficiently diversified to handle changes.

E —Entry:

Barriers to Entry. What Warren Buffett calls moats.

How challenging is it to start up your company and compete? If its profitable, everyone will do it if they can. Due to the intense competition, developing a YouTube channel or growing an Amazon drop-shipping business is challenging. Businesses that produce wealth have entry barriers that keep most people out.

Be devoted and persistent enough to overcome obstacles that will minimize your competition.

N —Need:

You must have a product or service that the market wants or needs. What you provide must offer delight or solve a problem to create value. Do something different from the current providers. If you provide another similar product or service from many other competitors, you will fight on price and race to the bottom.

Remember, it is not about what you love but what the market needs.

T —Time:

All startups require a significant time commitment in the early years. However, after things get up and running, you must be able to run your business primarily without your involvement if you don't want to be permanently bound to it. This independence could be through automation or hiring people to run it for you.

Of course, you must make enough money to hire someone.

S —Scale:

How simple is it to grow the company? For example, do you have a website where you can sell digital downloads to 1 million people as efficiently and cost-effectively as to just 100? Or are you only able to accommodate a certain number of customers daily, like making and selling sandwiches?

You must be able to scale if you want your income to increase exponentially.

Understanding Your Customers is the Secret to Success.

The holy grail of entrepreneurship is product/market fit.

The key to creating a successful business is to offer products and services that people want. There has to be a match between what you are offering and what customers need.

This concept sounds obvious, but not getting early customer feedback is the primary reason why many ventures fail before they begin. As Steve Blank has said, you have to get out of the building and talk to customers.

This process is called customer discovery and customer development.

There is an incredibly valuable book on this subject called "Talking to Humans" It's by Giff Constable.

The book has profoundly insightful and entertaining illustrations that the authors generously allow me to use. They are by the talented artist Tom Fishburne.

These cartoons poke fun at common customer development mistakes. I will post some of them throughout the rest of this article. Understanding what not to do will save you and your projects from myriad cul de sacs of frustration. Don’t waste time and money building products that your customers may or may not want.

Potential customers are the most relevant source of feedback and insight for refining your product ideas. The holy grail of startups is achieving product/market fit.

Surveys and Questionnaires

A great way to do customer discovery and customer development are to use questionnaires and surveys. There are web-based services that allow you to create surveys that query potential customers. You can then analyze the results.

You can access potential responders from your email list, social media, or through the service provider. An excellent tool to begin customer discovery is to use is SurveyMonkey.

The terms Survey and Questionnaire are relatively synonymous and interchangeable, but let’s differentiate the two because that is what marketers do; they differentiate.

This differentiation between the two terms is by no means definitive. Still, it gives a sense of how to approach two concepts of querying customers to gather information for segmentation and targeting.

A survey is a more general term than a questionnaire. Oxford Dictionaries define a survey as: “a general view, examination, or description of someone or something.” Survey techniques include observation, research, and sounding of opinion. A survey is the result of open-ended questions. Here you are doing qualitative research.

A questionnaire is a set of printed or written questions with a choice of answers, devised for analysis or statistical study. This process is more quantitative research. The assembled results of these fixed responses can be quantified and expressed as a percentage or other number.

Quantified results are clearer to communicate and actionable.

In both cases, you can get customer feedback on products and services. You can solicit suggestions about what else you can provide and what they feel is important about what you are doing or propose to do.

A caveat is that customers don’t always know what they want or need. Henry Ford remarked that if he asked people what they needed, they would have told him a faster horse. In many cases, people can’t conceive of the benefits of something they have never known.

You can also couch questions in a way to get potential customers excited about your motives by inquiring into their dreams and aspirations. You can use a questionnaire as a marketing tool to promote engagement with customers.

You must also be aware and take care of the biases inherent in the sample group you are questioning. If they are your social media contacts, then they are self-screened in a certain way.

If they are from your email list, then the ones who initially signed up based on your free give away, or lead capture strategy, are predisposed to your value proposition. The ones that have stayed and not unsubscribed fans of the content you have been providing.

Find some sample sets that are not biased toward your offerings. Don’t preach to the choir.

You can get less immediately biased groups from the survey provider like Survey Monkey.

You can spot trends, identify preferences, prioritize feature sets for Minimal Viable Product, refine marketing, and messaging based on questionnaire results.

Talking to customers and getting their feedback is entrepreneurship 101.

Be aware and ensure to temper the customer feedback by taking into account potential biases and preferences of the group responding.

Good luck road-testing your ideas!

Design Thinking

The Lean Startup methodology came out of business and engineering thinking about how to create a standardized process for developing startups that limits risk and ups the odds of success. Design Thinking is a methodology evolved out of the design field. It is more creative and aesthetic in its approach and concept and entrepreneurs have adopted it.    

Like Lean Startup, Design Thinking is also an iterative process that focuses on understanding the needs of potential customers, testing ideas, and searching for product/market fit. It is a user-centered way to conceive and create successful products.   

Designers use this approach to solve complex problems and find optimal solutions. A design mindset is solution focused and action oriented. Design Thinking draws upon logic, imagination, intuition, and systemic reasoning, to explore possibilities and to create desired outcomes that benefit the end user, the customer.   

Design thinking is inquiry-based and open-ended. It forces you to put yourself in the customer's shoes. It is initially about generating empathy with the customer and their needs and wants.    

There are a number of variations, but the basic steps in the Design Thinking process are:   

·      Empathy   

·      Define   

·      Ideate   

·      Prototype   

·      Test   

Like Lean Startup, Design Thinking is based on building a Minimal Viable Product, a product with enough features to gather meaningful feedback in order to see what's working, and double down on those features that really moved the needle.   

Design Thinking is a systematic innovation process for gaining deep customer understanding and deciding which features and which products to design and launch.   

In the world of startup incubation, Design Thinking is often compared and contrasted with the Lean Startup approach, which is more engineering-based and quantitative. The two methods are far from mutually exclusive as both seek to effectively serve customers' needs through a systematic, low-risk path to innovating in the face of uncertainty.   
   

******************

Design thinking can be described as a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.   

Tim Brown CEO, IDEO

Growth Hacking

There was a time when television and magazines ruled and marketing meant advertising campaigns. This was the Mad Men era.  Now marketing means an entire suite of activities based on product/market fit and customer engagement. It’s no longer about manufacturing desire for a fait accompli product. Customer needs and feedback are baked into the product and the customer experience is integrated into the company.

Growth Hacking is about customer participation in the marketing process and turbocharging awareness campaigns by creating viral products and content.   

Growth Hacking resides at the intersection of Marketing, Engineering, and Programming. It takes advantage of all the new tools of websites, mobile, analytics, email and social media available to us that help us reach and communicate with customers and measure their behavior in order to provide the best user experience possible. It has gone from one-way advertising to two-way engagement.      

Growth Hacking is a process of rapid experimentation across marketing channels, like email and social media, and also product development focused on enhancing the user experience. The goal is to identify the most effective, efficient ways to grow a business by understanding what is most compelling to customers both in messaging and product feature sets.    

Growth Hacking refers to a set of marketing experiments that leads to the rapid growth of a business. The experiments are run by A/B testing features and messaging, and measuring which aspects customers respond to best. Measurement tools like Google Analytics provide the measurement metrics and feedback that help refine awareness campaigns and product features.   

It’s about how you get, keep and grow customers. The first stage is Customer Acquisition where we activate customers to do something through Calls-to-Action.  Calls-to-Action are designed to activate lead generation and sales. Initially it could be a sign up or download of valuable content and ultimately leading to becoming a paying customer.   

Next we want to keep them and not lose them to competitors. Then we want to grow them by giving them compelling reasons to spend more or use more of what we offer.   

Marketing funnels are developed to measure how many people respond and then convert to being customers. This process is obsessively measured and continually refined and optimized.   

Customer Acquisition Costs (CAC) are calculated and compared to the Lifetime Value (LTV) of a customer. We obviously are looking to optimize CAC<LTV. Conversion Rates are tracked and optimized along the customer journey.   

Growth Hacking includes engagement with customers through delivering content like blogs, digital downloads, and social media posts. Viral Marketing is a method where customers are encouraged to share information about products or services via various Internet channels especially social media.   

Growth hacking was born from the challenges of startups.

Traditional marketing has a comprehensive focus, and while that skill set is critical in an established enterprise, it is not relevant early in a startup.

In a new startup, you don't need someone to build and manage a marketing team or establish a strategic marketing plan or any other thing that marketers do. A startup needs growth.

A growth hacker has different objectives from a marketer.

Every move a growth hacker makes is informed and driven by growth. The focus of every strategy, every tactic, and every initiative are growing the user base and customers.

A growth hacker's sole focus is growth.

Traditional marketers care about growth, but not to the same single-minded extent. A growth hacker's effectiveness is their obsessive focus on a singular goal. By ignoring everything else, they achieve the one task that matters most early on in a startup.

This focus on growth has given rise to several methods, tools, and best practices, that didn't exist in the traditional marketing repertoire.

Traditional marketers understand traditional products and advertising channels. The Internet has transformed products, services, and advertising channels.

Products used to be physical. Now they are also invisible bits and bytes in the form of software products and digital downloads and streaming services. Products used to be only things like cars, clothes, books, and candy. Now Facebook is a product. Online accounting software is a product. Something you can't hold is now products and services.

This transition is responsible for the new age of growth hackers. The Internet has given the world new kinds of products and services, which demand a new type of thinking about marketing.

Now, a product can be instrumental in its adoption through the exponential power of networking effects. A product like Snapchat allows you to share their product with other friends to make your own experience on their platform better. Toothpaste can't do that. A product like Dropbox can give you free cloud storage if you get a friend to sign up. Washing machines don't do that.

To fully grasp growth hacking, you need to come to grips with this new classification of products, services, and advertising that the Internet has produced.

Startup Funding

The whole process of funding and developing startups has become more widespread because the cost of getting a product to market has dropped so precipitously. In the past couple of decades, launching has gone from millions of dollars to anywhere from under $20,000 to around $500,000.

The funding levels are relatively manageable by investors, and the potential returns are enormous. Potential. The risks are very high of any economic return, but the few startups that break out create legendary fortunes. That is why there are startup founders and startup investors.

A startup goes through a series of funding rounds on its journey from the founder’s idea and then developing an MVP and customer discovery, finding Product/Market Fit, and scaling up operations and sales.

There are many terms tossed around to describe the various rounds of funding that a startup can potentially receive.

These are the typical rounds encountered in an Angel and Venture-Backed Startup, and not all startups receive all these rounds. Most small businesses don’t plan on scaling to become Unicorns and don’t pursue this funding journey.

Startup Funding Rounds

The following presents startup funding stages in their evolutionary order relative to the development of a startup.

Sweat Equity

At the beginning of most startups, the founders will work on the idea for free. This work is where things start. All the ownership resides with the founders at this point. They figure out how to develop the business concept using their resources. This ground zero is where hustlers and builders push the development of their company forward without outside funding.

Like Teddy Roosevelt said: "Do what you can, where you are, with what you have."

If your idea is compelling enough, you can enlist others' talents to work for sweat equity. Sweat equity compensation may take the form of paying a computer coder to help develop an MVP in exchange for stock in the company instead of cash.

Bootstrapping

Bootstrapping is taking early revenues from products and services developed with sweat equity and plowing it back into more development work. There is some outside money from early adopter customers, but not from investors. Initial paying customers is an important milestone because it signals a need for what the company is creating. It is a signal that the founders are resourceful and committed to finding a way forward. This scrappiness is the kind of grit investors look for in founders.

The 3 Fs

The 3 Fs are usually: Friends, Family, and Fools, but I like to replace the last one with Fans. Once a fledgling startup has developed the concept and identified some initial customer interest, and has a clearer idea of the next steps, it is time to tap the founders' personal network. The personal network is personally risky because raising money from your grandmother or uncle and then throwing in the towel in six months can make for an uncomfortable Thanksgiving get-together. You want to be sure that you are on to something before hitting up loved ones and old college roommates.

The first two stages move the idea along and also help develop discipline about how to parsimoniously deploy these precious funds in the most effective and efficient manner.

Here you want to have a plan to get to clear milestones and deliverables that will be inflection points of added value and reduced risk. This plan needs to include a detailed budget of how to get from here to there. An entrepreneur needs to be scrappy and capital efficient.

Self-Funding

Self-funding founders are a select group that has the resources to fund the initial development. A serial entrepreneur who has sold previous startups are in this category. These are founders that want to focus on building an MVP without having the distractions of pitching investors before knowing whether the idea is feasible and customer interest is reasonably there.

These seasoned folks also realize that the further along the business is, the higher the company's valuation and the less equity they need to give up to raise capital.

Incubators and Accelerators

Incubators and Accelerators are formal programs that accept startups and put them through a program to help develop their idea and then present the graduates to an investment community during a presentation day.

Founders can get a modest amount of funding from these programs. They also get credibility because they have been scrutinized, vetted, and accepted by the incubator program.

Y Combinator is one of the most popular incubators, and they have had some great success stories come through their program like Dropbox and Airbnb.

Crowd Funding

Kickstarter, Indiegogo, and others have made crowdfunding a viable option for taking projects from ideation to execution and prove market validation.

These website driven funding sites are attractive because they represent a funding vehicle that is non-dilutive. Non-dilutive means that the money raised is not in exchange for equity (ownership) in the company. Instead of equity, other incentives are offered, such as exclusive access to the founders or early access to the product.

A crowdfunding project can also act to gauge demand and generate interest in a concept early on.

Angel Investing

This funding round is also called Seed Funding and represents the first professional outside investment. Most founders get their seed round after successfully going through two or three of the early-stage funding strategies discussed above.

Angel investors are individuals who scout for great startup opportunities and generally make a lot of relatively small money investments in early-stage high-risk ventures. They are essentially buying lottery tickets on the founder's character and the potential upside of a company breaking out into a huge success. They look to make 100 times their money back if a company "exits" successfully by being acquired or going public.

Angels represent varying degrees of professional investors, and they must be convinced of the potential of a startup to scale and become hugely valuable. After looking at many such deals, their greed needs to overcome their skepticism for them to invest.

Series A

Series A is the funding round where the company becomes a professionally organized entity: a corporation. As part of the deal, professional venture capital firms join the board and create proper "governance" to participate in this funding round. Proper governance means that the company is legally incorporated, holds regular board meetings, and keeps a detailed record of board resolutions designed to increase its share price.

Before the Series A, founders run the show and answer to no one. The focus is on trying to find product/market fit. After Series A, the CEO will spend a significant amount of time (25%) managing the board and addressing its legal requirements.

Series B,C,D etc.

These are the follow-on rounds once a company makes the transition to being a professionally managed operating entity.

Cap Table

The cap table is short for the capitalization table. It is the official list of all the company shareholders and how much they paid for their shares. The above funding rounds represent the people that populate the cap table.

Exit

The exit is the event that represents the big payday for early investors and founders. A funding exit is either an acquisition or an IPO Initial Public Offering. An IPO is where a company gets listed and traded on a stock exchange and sells shares to the general public. IPOs are relatively rare.

The more usual exit is an acquisition where the startup is bought by an established company to add to its portfolio of offerings or other strategic reasons.

The company's purchase price is divided among the various shareholders, and the value of their pro-rata portion determines their return on their original investment. The exit is the end game goal of venture-backed startups.

How does your ownership as a founder in your startup change over time?

Dilution can happen in all sorts of ways.

Peter Walker recently compiled a large amount of data from US Carta startups (45,000+) on how these slices of equity pie are distributed over time.

The deck below digs into each source of dilution provides some current market benchmarks for how startup founders are building today and gets into the real details.

It covers:

• SAFEs and convertible notes before price equity (friends & family, angel, pre-seed, and "seed on SAFEs")

• Priced round dynamics

• Employee option pool size impact

• Convertible instruments (either SAFEs or Notes) signed in-between priced rounds

• Examples of ownership at IPO

I hope you find it valuable!

How to Pitch Your Company

Customers and Investors need to understand what your company does. As a founder, you'll be pitching your startup a lot. An effective pitch has to be clear and concise.

Go through the pitch creation process by answering these seven questions. When you can answer all seven questions succinctly, you'll be well prepared to pitch.

This process is also very valuable for existing companies as it can expose areas for improvement.

What Should Be In Your ????? ?????

Whether you're steering a business, introducing a new product, or aiming to boost sales, a well-crafted pitch deck is your secret weapon. It's a powerful tool that enables you to effectively communicate with potential clients or investors, showcasing what you can bring to the table and why you're a smart investment choice.

The secret to a winning pitch deck, typically consisting of 10-15 slides, is to tell your story in a way that's both brief and impactful. This means crafting a narrative that's not only compelling but also tailored to your specific audience.

Your pitch should foremost include these:

1. The problem and opportunity

2. Traction so far

3. Your value proposition.

4. Your business model(s) that give you a "competitive advantage"

5. Competition

6. Your team's capability to accomplish your goals

7. The capital you need and how that will create much greater value

Optional slides (depending on your startup's size, stage, and industry):

• Market Validation

• Market Size

• Marketing Plan / Go to Market

• Use of Funds

Which ones do you consider must-have slides in a pitch deck?

Credit: Guy Kawasaki, Sequoia, Crowdfunder, 500Startups

What should be derisked at each funding stage?

At each funding stage, it’s crucial to mitigate risks to ensure the success of your startup.

Let’s delve into the specific areas that need to be derisked at different funding stages:

- Pre-Seed:

Product Development: Understand the risks of building your product. Are you optimizing costs while developing your minimum viable product (MVP)?

Technical Debt: Be aware of technical debt and address it proactively.

- Seed:

Customer Acquisition: Identify your first customers and assess their willingness to pay for your product or service.

Market Size: Investors will evaluate if your market is substantial enough to yield healthy returns.

- Series A:

Go-to-Market Strategy: Develop a reliable, predictable approach for customer acquisition.

Ideal Customer Segments: Capture your target customer segments effectively.

- Series B:

Market Share Expansion: As the race intensifies, focus on expanding, scaling, and optimizing your target market against larger competitors.

- Series C+:

Leadership and Culture: Build a startup culture supporting a growing team. Maintain core values even as your company scales.

The 18 Mistakes That Kill Startups, by Paul Graham (YC Founder)

"In a sense, there's just one mistake that kills startups: not making something users want. If you make something users want, you'll probably be fine, whatever else you do or don't do. And if you don't make something users want, then you're dead, whatever else you do or don't do. So really this is a list of 18 things that cause startups not to make something users want. Nearly all failure funnels through that."

Are you overly focused on solving problems?

You may need to change your thinking and spend more time on problem-framing first.

"All good innovation starts with FINDING and FRAMING problems...and it's only after we have unpacked problems to really understand them and define them that good responses (and therefore innovation) can actually happen." - This comes from the excellent Problem Framing Canvas by the Griffith Centre for Systems Innovation.

What's the problem with skipping over the "framing" stage?:

? You can end up "solving" the wrong things

? You can get stuck re-using "solutions" that just aren't effective

? You can feed a bias for action (over empathy & reflection)

? It can lead to a one-size-fits-all approach.

Innovation starts with finding problems – Things we can't stop thinking about, that annoy us or our colleagues or customers intensely, and that we can't let go of. The noticing, finding, exploring, discovering, understanding, and ultimately framing of problems that matter.

Here are five steps to ensure that you don't jump to solutions:

1️⃣ Expand (e.g., how might we?)

2️⃣ Examine (e.g., what are the deep causes?)

3️⃣ Empathize (e.g., what are the pain points?)

4️⃣ Elevate (e.g., what are the interconnections?)

5️⃣ Envision (e.g., what's our ambition and what steps are involved?)

Does this resonate with you? Is it something you do well? I must admit that I love jumping in and trying to "fix" things... even when I know that's not sensible.

Sequoia's Leaked Investment Memo on YouTube

In 2005, Roelof Botha, a partner at Sequoia, proposed a $1M seed investment in YouTube, followed by a $4M Series A. A year later, Google acquired YouTube for $1.65B, netting Sequoia $500M—a 57x return.

During the 2010 Viacom vs. YouTube (Google) court case, Botha had to disclose his investment memorandum as part of his testimony.

YouTube's pitch deck is also included in the last few slides.

In the high-stakes world of entrepreneurship, securing investment is often the critical turning point between a visionary idea and a thriving business. It's the moment when your passion, preparation, and perseverance collide with opportunity. But how do you stand out in a crowded field where investors hear countless pitches and see endless potential? The answer lies in your idea and how you present it.

Paul Graham, a leading figure in the startup world, has distilled the art of convincing investors into nine transformative steps. These steps are not just advice; they are a roadmap that can turn you from a hopeful founder into a force that investors cannot ignore. This guide is not about faking confidence or spinning a story—it's about embodying the traits that naturally attract investment. It's about being real, being prepared, and being strategic.

Whether you're gearing up for your first pitch or refining your approach for the next big round, these nine steps will empower you to connect with investors on a deeper level, showcase the true potential of your startup, and ultimately, secure the backing you need to bring your vision to life. So, dive in, absorb these insights, and prepare to inspire belief—not just in your idea but in you as a founder.

Crafting the Perfect Pitch Deck: A Blueprint for Visionaries

As an entrepreneur, you stand at the precipice of innovation, armed with ideas that can reshape industries and redefine possibilities. But every great idea needs a vessel—a way to convey its power and potential to those who can help bring it to life. That vessel is your pitch deck.

The anatomy of a perfect pitch deck is not just about presenting facts or figures; it's about crafting a compelling story. This story should encapsulate the essence of your vision, highlight the problem you're solving, and showcase the unique value you bring to the table. It's about painting a vivid picture of the future—a future where your solution is the catalyst for change.

The following cheat sheet provides a roadmap to constructing a pitch deck that resonates. From articulating your purpose and vision to detailing your market strategy, every component is designed to build credibility, spark interest, and, most importantly, inspire action.

Remember, your pitch deck is more than just a presentation—it's your chance to make a lasting impression. It's your opportunity to turn skeptics into believers and investors into partners. With the right pitch deck, the possibilities are limitless.

So, as you embark on this journey, think big, be bold, and let your passion shine through. Your story is worth telling, and this pitch deck is your stage. Now, let's set the foundation for your success.

Summary

The methods described in this course are not mutually exclusive approaches. Apply design thinking, lean and agile methodologies, and growth hacking together. Integrate them into your creativity and development process. The interplay is valuable. Keep it lean and experimental. Lather, Rinse, Repeat.

The goal is to get to know the customer well. Put in the minimum amount of effort and resources to get the maximum learning ASAP. One way is to build a web page to see if people will click on it. Another way is to place keyword ads around your core feature or value proposition. As an entrepreneur, repeat this process again and again. Keeping the process cost-effective allows you to do more iterations.

An element of Lean Startup is the notion of the pivot. If the data invalidates your hypothesis, you keep some features fixed and change other parts. But how do you know where to pivot? The guiding principle is a deeper customer understanding. This scenario is an example of how Design Thinking and Lean Startup can interact: The empathy you gain through Design Thinking helps you identify possible pivots.

A startup venture is a series of hypotheses about who's a customer, what makes your product or service attractive to these customers, etc. Lean Startup provides a rigorous framework that you use to prove or disprove as many of these hypotheses as possible at as low a cost as possible. The interesting question is, how do you generate the hypothesis? If you have not already identified the user need through your own experience of a pain point, having experienced it firsthand, how would you discover that need?

Again Design Thinking can help. In Design Thinking, you develop a prototype and use it to get qualitative feedback, and Lean Startup makes the process more rigorous. In this way, you don't delude yourself that the feedback is necessarily positive.

These approaches complement each other and can be used to converge on insanely great products and services that meet customer needs and wants. When features are baked in that facilitate Growth Hacking, you are on your way to a very promising Startup Venture!

10 free websites so valuable they should come pre-bookmarked on every browser.

Financial Projections Lecture

How to construct Pro Forma Financial Projections

In this lecture I go over:

· Income Statement format of pro formas

· Cost Structure

· Fixed and Variable Costs

· Risk Management and Fixed Costs

· Revenues

· Price and Quantity

· Cost of Goods Sold COGS

· Cost Accounting

· Contribution Margin

· Breakeven Analysis

· Profit

To get a valuation for your project or enterprise: take the stream of profits from your projections and pull them back to Present Value using Discounted Cash Flow technique. That present value calculation is your best estimate of the value of your venture!

See the attached slide deck and Excel workbook template that accompany this video lecture to get a better understanding of how to structure financial projections and calculate a valuation using DCF and NPV.

Budgeting Made Easy: 5 Methods You Should Know

Feeling a bit overwhelmed in the world of budgeting? No need to fret; I've got your back! Today, we're simplifying the five most popular budgeting methods to help you find the perfect fit for your business.

Swipe through to learn about:

????-????? ?????????: Great for cost control and focusing on priorities, but be prepared to invest some time!

Incremental Budgeting is simple and fast, but it may not be the best method for adapting to change.

????????-????? ?????? (???): Gain a clear picture of how your money drives revenue, but be prepared to put in the groundwork.

????? ??????????? ??????: Ensure resources are directed towards high-impact initiatives, but prioritize clear communication across departments.

???????? ??????: Adapt to changing market conditions quickly, but don't lose sight of long-term goals.

????????, ??? ???? ????????? ?????? ?? ??? ??? ???? ????? ??? ???

Understanding these approaches can help you make an informed decision and put your business on the path to financial success.

This lecture is an introduction to marketing.

Introduction to Marketing

Marketing is the fastest, easiest, and most significant multiplier in achieving your goals.

Marketing is an essential part of any enterprise. Nothing happens until something gets sold.

Many people equate marketing with advertising. Advertising is undoubtedly a key component of marketing. Advertising can create awareness, enhance perceptions of value, build brand equity, and ultimately help make the sale.

But Marketing is much more than just advertising.

Here's the definition of Marketing on dictionary.com:

"The total of activities involved in the transfer of goods from the producer or seller to the consumer or buyer, including advertising, shipping, storing, and selling."

Marketing encompasses all of the outward-facing activities of a business.

Marketing is about leveraging human experience into the customer experience.

Marketing Basics

An enterprise can be thought of as divided into two parts: internal and external. The inward-facing part focuses on how to make and deliver the product or service most efficiently. It includes management, accounting, and operations activities.

Marketing is the outward-facing activities of a company. Marketing is the set of functions related to customer-focused and customer-facing activities. Marketing deals with reaching and convincing customers of your product's value, differentiating it from competitor's offerings, and creating loyalty to your brand.

Marketing communicates the fit between your offering and the customer's needs and desires. Marketing also analyzes the market for your goods: how big it is, what market share you may achieve, who the competitors are, and how to differentiate your offering from theirs.

Marketing is about how you reach your customers and how you deliver your products and services. Delivery happens in Marketing Channels and distribution.

Marketing also looks at the product/market fit and models the demand and how pricing affects the quantity demanded.

Marketing is about understanding how groups of people think.

People think in herds. They go mad in herds, while they only recover their senses slowly, one by one.

Technology has changed over the decades, but people haven't. In 1841, Charles Mackay brilliantly captured the essence of group-think. Read his book Extraordinary Popular Delusions and the Madness of Crowds, and events like the Great Recession or the popularity of the Kardashians will not surprise you.

Here is a great quote from his book: "We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first."

Social Media has turbocharged this phenomenon!

Create Awareness of a Solution to a Problem

Marketing is all about creating awareness about a solution to a problem. A company either has a solution to a problem, or they are providing delight. That is the value proposition. The value proposition can be packaged as a product or a service or some combination of the two.

A marketer's job is to make potential customers aware of what you are selling, keep existing customers satisfied with their purchase, and sell them more of your products and services.

Figure out ways to help other people get results for which they will gladly pay you.

There is a lot of money in the world looking for someone who has a solution to a problem. Decide to solve a problem and hence become qualified to have a lot of money!

Entrepreneurs and business people call this Product/Market Fit, and it is the Holy Grail at the center of all business models.

Two forces need to come together. On one side, you need to find and validate customers and their needs. On the other side, you need to develop products and services that meet those needs. When the two come together, magic happens.

You need a good customer discovery process and a good product development process. Then you need to monitor and improve both continuously.

Marketing sits at the intersection of these activities and drives both of them.

Download the book to follow along with the course and for future reference!

You Already Are a Sophisticated and Experienced Marketer

For most all of your life, from when you were first cognizant of your surroundings, you have been exposed to the shrewdest marketing campaigns. Ever since you first wanted a particular toy or breakfast cereal or candy bar or to watch a favorite TV show, you have been on the business end of marketing campaigns.

We are all bombarded by marketing messages all day long and have become very astute at quickly assessing if we are interested or not, if they are trustworthy or not, is their proposition of value to us or not.

Like it or not, most of our desires are manufactured and manipulated (certainly the attempts are made) by marketing. We know some of what works and what doesn’t on ourselves. And some marketing gets in past our conscious discretionary barriers and manipulates us in more subliminal ways.

Draw on your reservoir of personal experience and opinion as you work your way through this book. And be more aware as you go through your day as to what marketing campaigns you find tasteful and effective and which you find stupid, tasteless, offensive or ineffective. And realize that some of the worst ones are also quite memorable. It's not just good marketing that is sticky.

After you read the content section check out the slide decks.

There are two slide decks attached here that support the following sections with an introduction, AIDA, 4Ps, STP, Branding, and the Business Model Canvas. The slide decks present the material from a slightly different angle to help explain and cement these critical marketing concepts.

AIDA is an acronym that stands for Attention, Interest, Desire and Action. The AIDA model describes the customer journey in stages from the moment a consumer first becomes aware of a product or brand through to when they make a purchase decision.

This process is called the Customer Journey. In Digital Marketing, with analytics tools we can measure the progress along this AIDA path, and which messages can be attributed to the actions we want to evoke.

Positioning

Do you know your unique selling point or your customer's reason to buy? You should. Knowing how you compare to the competition and stand out is essential for strong positioning.

Positioning is essential for every product and service for which the customers have an alternative. It means identifying your offerings' valuable characteristics compared to the leading alternatives.

Without positioning, customers have no reason to buy from you. After all, if you don't stand out positively, why would they buy from you?

There are many approaches to positioning, Michael Porter's Five Forces Framework and Generic Strategies being the most famous of them. While Porter's approach helps you determine what your positioning could or should be, there is little information on how to do it.

This is where April Dunford's approach to positioning comes in. In her book, "Obviously Awesome," she lays out a practical, five-plus-one-component approach to positioning. The components are:

1. Competitive Alternatives

If you didn't exist, what would customers use?

2. Unique Attributes

What features/attributes do you have that alternatives do not?

3. Value

What value do the attributes enable for customers?

4. Customers Who Care

Who cares a lot about that value?

5. Market you Win

What context makes the value obvious to your target segments?

6. Relevant Trends (Bonus)

What trends make your product relevant right now?

There's a couple of things I like about Dunford's approach:

? It doesn't start with thoroughly analyzing the customer's needs and not even start with the product or market.

? It starts with how customers currently fulfill their needs. Whatever the problem, customers have some solution right now (otherwise, the problem wouldn't be a problem they would need a solution for).

? It only moves to the product or service category in component 5. This means that picking what you call the product or service comes after establishing its unique and value-adding attributes.

? It helps bring in current trends at the right place. Not at the start, which would merely lead to chasing hype, but as a way to enhance the product or service's relevance for the customer right now.

While seemingly simple, this makes it one of the more intelligent approaches to positioning.

It's time to look at your positioning. 

Marketing, Pricing and Revenue

This lecture ties together the microeconomics of supply and demand with the concept of pricing, elasticity of demand, and revenue generation.

Revenue is the top line number on the Income Statement so have a good conceptual knowledge of revenue and how it is calculated is crucial.

Revenue = Price X Quantity Sold

STP in marketing stands for Segmentation, Targeting, and Positioning.

The STP model helps marketers craft messaging and develop and deliver tailored and relevant messages that engage segmented, target audiences.

This approach is helpful in developing a digital strategy for content marketing. You can use STP to apply marketing personas and archetypes that help develop relevant and targeted digital communications.

This is an audience and customer approach to marketing. The goal is to deliver relevant messages to commercially attractive audience segments.

STP focuses on identifying the most valuable segments and then creating the right marketing mix and product positioning strategy (think 4Ps) for those segments.

In marketing we want to identify potential customers and convince them to buy. We also are interested in convincing past customers to be repeat customers.

We do this by providing products and services they need and want. It’s all about making the right people aware of our value proposition.

The STP model helps marketers craft messaging, and develop and deliver tailored and relevant messages that engage segmented, target audiences.

1 Segmentation

In marketing we want to identify potential customers and convince them to buy. We also are interested in convincing past customers to be repeat customers.

We do this by providing products and services they need and want. It’s all about making the right people aware of our value proposition.

Everyone is unique but we also tend to have interests in common with others. We want to identify those commonalities in the most refined and granular ways possible. These are called niches.

We use segmentation to identify niches with specific needs and desires that we can articulate clearly. In mature markets we use segmentation to find new customers. Segmentation allows us to focus our messaging and deliver it more effectively.

Marketing messages should be designed to address and inform each segment of the benefits and features that are most relevant to that segment. This is a different approach from mass marketing where one size fits all for all customer types. This approach is more efficient and affective, as it delivers the right mix to the right group of people, rather than a spray-and-pray shotgun approach.

Markets can be sliced and diced based on any variable, as long as it’s clearly definable and measurable. Here are some examples:

Demographics

This is the most well known way of classifying people into groups. It can be done by: geography, age, gender, income, education, ethnicity, marital status, profession or occupation. Demographics explain 'who' your buyer is.

Psychographics

Psychographics delve into 'why' your customer makes a purchase. This is a way of classifying behavior based on personality and emotional traits linked to purchasing decisions. Psychographics include: attitudes, lifestyle, hobbies, personality and leadership traits and attitudes toward risk.

Gather data to help form psychographic profiles for your typical customers through interviews, surveys, questionnaires, customer data and feedback. This is the kind of information that Facebook gathers based on “likes”.

Create archetypes of your customer segments based on their psychographic profile.

You can purchase and access massive troves of data on the interests and attitudes of potential customers from Internet, web and mobile sources. We will explore this more when we discuss analytics tools and sources later in the book.

Lifestyle

Lifestyle refers to non-work time endeavors like hobbies, recreational activities, entertainment, vacations, and other. Keywords and search terms used in such tools as Google Adwords can help you locate and address potential customers by their lifestyle interests and preferences. More on this later when we get into digital marketing.

An effective way to research these behavioral niches is Reddit, where like-minded people create subReddits about a given interest or hobby. The information that gets shared can be very valuable in understanding customer segments.

Belief and Values

This refers to Religious, political, nationalistic and cultural beliefs and values. Social media platforms like Facebook are Twitter good sources.

Life Stages

People change and prefer different activities and have different interests based on their age. A twenty something falls into different categories than a 60 year old. Life Stages is the benchmarking of people’s lives at different chronological stages. Check out the book “Passages” for a great primer on this approach.

Geography

This is where you locate people by country, region, area, zip codes, metropolitan or rural location, climate or mountains etc.

Language

With translation tools freely available like Google and Bing we can think about targeting language groups relatively easily.

Behavior

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals. In segmenting it refers to how a customer relates to the nature of the purchase, brand loyalty, usage level, benefits sought, distribution channels used, and the reaction to marketing messages. Amazon has mastered accumulating this data to create profiles of purchasers.

Usage level

Usage is an interesting variable. Many companies recognize that they have “power users” that are responsible for an outsize portion of sales. Coca Cola for example has a club for their power users because they estimate that 20 percent of their customers are responsible for 80 percent of their sales. Identity and cultivate your power users.

2 Targeting

The list below relates to various criteria for evaluating the potential commercial viability of each segment.

· Size: The market must be large enough to justify segmenting. Market potential size has expanded as Long Tail markets have emerged. Long tail refers to markets that can be reached via the Web where there is no concentration geographically but there is enthusiastic interest diffused across the globe. Add up all those loners and they can represent significant markets. The more idiosyncratic your offering the more you will be marketing across geographic zones.

· Difference: Segments need to be distinct and identifiable. Measurable differences must exist between segments. Measuring tools and techniques have proliferated with digital marketing. Google Analytics is a major tool.

· Money: It has to be worth it economically. The anticipated incremental profits must exceed the additional marketing costs. The cost of acquisition of a customer (CAC) must be less than their lifetime value of purchases (LTV). CAC<LTV

· Accessibility: The potential customers in each segment must have the ability to receive your marketing messages and distribution networks must be able to reach them. Accessibility has increased dramatically with the advent of web and mobile messaging, digital downloads, SaaS models, and overnight shipping.

Different segments respond to different benefits so focus on communicating the different benefits.

3 Positioning

Positioning maps the variables discussed in the Segmenting and Targeting steps and defines the space where your offering resides relative to competitors in the view of your customers.

Thoughtful positioning is critical in staking out a competitive advantage in the market.

Positioning is a component of Branding, which we will discuss next. Customer perceptions and feedback influence a brand’s positioning in the market.

Three types of positioning impact a brand and its competitive advantage:

· Functional

· Symbolic

· Experiential

Functional Positioning has to do with feature sets and user experience.

It is focused on the aspects of the value proposition that speak to meeting and fulfilling customers' needs and desires.

Symbolic Positioning Luxury and prestige brands operate in this realm. These are the aspirational elements of your offering; the characteristics of the brand that fulfill customers' self-esteem.

Experiential positioning focuses on the elements of a brand that address emotional connection with customers.

These three elements combine to position the brand. Positioning is a conceptual tool to help tailor your value proposition and communicate it to customers. You want to highlight your advantages relative to competitors and communicate this distinction in a compelling way to customers.

Branding

Your brand isn't what you tell your customers your company is, your brand is what your customers think your company is.

Branding is the focal point of any marketing strategy. Your enterprise value is deeply intertwined with your brand.

Your brand is your social contract with your customers. A brand conveys what can be expected from your products and services. It distinguishes your offerings and value proposition from your competitors. Customer loyalty is to your brand. Its what you aspire to deliver and what people perceive you to be.

Brand equity is the added value brought to your company's products and services that sustain your profit margins and influence repeat sales. Brands have cache and evoke emotional responses and aspirational intent.

Popular brands include Coca-Cola, Nike, Apple, and BMW. They have built powerful brand equity and can charge more for their products. Protecting the brand is a strategic imperative. Damage done to the brand through some misstep can have very long lasting, and costly, effects.

How you promote your brand is largely based on who your target customers want and need you to be. These are the positioning issues we discussed in the STP section.

You need to define your niche. You can't be all things to all people. Are you promoting innovation or the user experience and reliability? Does your perceived value lie in being the high-quality or the low-cost option?

Your messaging communicates what your brand stands for.

Design is a critical component. The look and feel of you offering creates the user experience. This is industrial design. The focal point of your brand is your logo. This is graphic design. Design thinking is a discipline that has emerged out of the design field and incorporates design principles into product development and branding.

What you communicate visually and verbally are crucial to your brand strategy. Your brand strategy is your plan for effectively delivering on your brand messages.

Brand strategy also includes how, where and when you deliver your message and what channels you use to distribute your product. These are the touch points for the customer and each touch point needs to be analyzed, refined, and finessed.

The added value of brand equity is derived from perceived quality and emotional attachment. Many sports brands associate their products with big time athletes via big time contracts. This is done in hopes that customers will transfer their emotional attachment from the athlete to the product. It's not just the product's features that sell but the aspirational linkage to super stars.

Defining your brand requires being very clear and precise about the following:

· Your company's mission

· The benefits of your products or services

· The features of your products or services

· What your customers and prospects already think of your company

· The qualities do you want them to associate with your company

· What are their aspirations and dreams and can they be actualized or rehearsed through association with you brand.

When you have a clearly defined brand, the next step is to build awareness (the first A in AIDA) Here are a few simple, time-tested tips:

· Create a powerful logo and integrate it into your brand image.

· Compose and craft your brand messaging which includes the key attributes you want to communicate about your brand.

· Create a "voice" that reflects your brand image and attributes and use it consistently.

· Develop a tagline that is memorable, meaningful and concise. It’s a statement that captures the essence of your brand. The tagline appears under or alongside the logo. A lot of the messaging will flow from the tag line and the tag line should be a distillation of your messaging.

· Branding extends to all aspects of your business and must be coherent and consistent.

· Deliver on your brand promise.

In this lecture I discuss:

• Growth Hacking

• Permission Marketing

• Content Marketing

• Email Marketing

And lots more!

Online Marketing Fundamentals

We don’t “go online” anymore. We live online.

Online marketing encompasses the promotion of your business online using a variety of ever expanding and evolving channels. These channels include search, social media, video, e-mail, and display ads. Consumers today live across these channels on their computers, tablets and smartphones. Online marketing is focused on being there at the right moment, with the right message, to capture the customer.

The Internet has transformed the way we buy and use products and services. It also has completely changed how we consume content and media whether for information, news or entertainment.

Now, with the Internet on mobile devices, that experience is available and accessed anytime and anywhere. This places the customer in the driver’s seat relative to the buying process. Potential customers have immediate access to the resources to conduct research, compare alternatives, share their experience, and ask their friends for advice and recommendations.

All these actions happen continuously and simultaneously. Marketing techniques have radically changed in order to adapt to this new world. What were once standard operating procedures are now marginalized and obsolete as online continues to become dominant.

Print media continues to drop in readership and people are abandoning cable TV for streaming services like Netflix, Amazon, and YouTube.

We have migrated from ownership to access models for movies, games, music and software. We don’t have shelves of DVDs, VHS cassettes, or CDs; we stream Pandora or Netflix. And we use SaaS providers (Software as a Service).

Streaming music, audio books, and Podcasts are alternatives to radio. Google Search and Maps have replaced the Yellow Pages. And Yelp allows the consumer can see reviews and even pictures of the business.

Even as we walk our attention is on our screen and we miss advertisements in the shop windows and next to the bus stops. In physical stores shoppers are using their phones to scan barcodes and compare prices. They are chasing deals and deciding whether it's cheaper and more convenient to buy online.

Your business and offerings need to stand out in this noisy environment of online and mobile channels. With so touch-points, and a multitude of channels, online marketing can feel overwhelming. But it's actually freeing to be creative and engage customers across so many potential platforms. You just need a contextual framework in which to operate.

In this lecture I discuss:

Platforms and Business Models

Fundamentals of Digital Marketing Strategy

There are basically three types of media we use in online marketing:

· Paid,

· Owned

· Earned.

Paid media is advertising that you pay for. This includes paid ads on channels like Google Adwords, Facebook, YouTube and Amazon. Google Adwords comes in two basic varieties: text and display marketing.

Owned media encompasses the channels you own like your website, your list of customers that you use to send out e-mails, and your blog and its readership.

Earned media is the realm of organic reach through Social Media platforms like Twitter, Linkedin, Facebook, Instagram, Pinterest, and Snapchat. Shares on your social media accounts, mentions on other blogs, and mentions in articles are ways various channels function within earned media.

These platforms all overlap, as do users as they interact with each. Together, they constitute the foundation of online marketing. To sum it up, online marketing is the process of putting your business front and center along the journey your customer takes on the internet, web and mobile devices.

Digital Strategy

Creating a coherent digital strategy is critical in order to take full advantage of the opportunities to connect with your customers online.

Having a digital presence in these channels just for the sake of it is not effective. The key is to develop and follow a dedicated strategy that results in a measurable return on your investment.

The importance and value of building out your online presence in a strategic manner is obvious but it's easy to be tempted to dive right in.

There is a saying attributed to Abraham Lincoln: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

This is why we started with fundamental marketing concepts like AIDA, STP, and the 4 Ps.These concepts provide the framework for strategic marketing thinking.

Fundamentals of Digital Marketing Strategy

There are basically three types of media we use in online marketing:

· Paid,

· Owned

· Earned.

Paid media is advertising that you pay for. This includes paid ads on channels like Google Adwords, Facebook, YouTube and Amazon. Google Adwords comes in two basic varieties: text and display marketing.

Owned media encompasses the channels you own like your website, your list of customers that you use to send out e-mails, and your blog and its readership.

Earned media is the realm of organic reach through Social Media platforms like Twitter, Linkedin, Facebook, Instagram, Pinterest, and Snapchat. Shares on your social media accounts, mentions on other blogs, and mentions in articles are ways various channels function within earned media.

These platforms all overlap, as do users as they interact with each. Together, they constitute the foundation of online marketing. To sum it up, online marketing is the process of putting your business front and center along the journey your customer takes on the internet, web and mobile devices.

Digital Strategy

Creating a coherent digital strategy is critical in order to take full advantage of the opportunities to connect with your customers online.

Having a digital presence in these channels just for the sake of it is not effective. The key is to develop and follow a dedicated strategy that results in a measurable return on your investment.

The importance and value of building out your online presence in a strategic manner is obvious but it's easy to be tempted to dive right in.

There is a saying attributed to Abraham Lincoln: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

This is why we started with fundamental marketing concepts like AIDA, STP, and the 4 Ps.These concepts provide the framework for strategic marketing thinking.

Now that you have a solid grasp of what digital marketing is and the tools, techniques, and platforms that are available. Its time to pick and choose which best suit your needs and begin to implement some campaigns.

Designing and Managing Digital Marketing Campaigns

Now that you have a solid grasp of what digital marketing is and the tools, techniques, and platforms that are available. Its time to pick and choose which best suit your needs and begin to implement some campaigns. Here are some summary thoughts as you start creating action plans for digital marketing.

We are in a period of rapid innovation and evolution relative to the tools and techniques of digital marketing. New technologies are continually being created and adopted and new ideas are being explored. The options available as a marketer are potent but can be overwhelming.

It's important to keep in mind that your marketing strategy doesn’t need to include every marketing channel available. You may end up using a handful of the ones we discuss, or you may find success in leveraging other avenues that are not part of these core components. With such a wide array of choices, it is important to evaluate which channels make the most sense.

Because we have limited resources of time and budget, we need to prioritize which channels to use. And, if you're exploring a new channel, it's a good idea to explore how it'll impact your day to day operations. In order to gauge the effort versus the return, we can evaluate each based on the effort required to build out the channel, and the value received in doing so. We need to examine the areas of our online marketing strategy like SEO, Search marketing, Social media and Video and decide what channel we're using for these areas.

Here is an example of a mosaic of channels and platforms that we can assemble: For SEO, we will focus on Google. For Search marketing, we'll use Google AdWords, and with Social media, we can start with Facebook. For video, we'll use YouTube. Now we can estimate the effort relative to the value.

SEO takes significant effort but has high value in pushing traffic to your website. Google Adwords is less effort but also costs money but the targeted nature of the channel has high impact and high value. YouTube for many may be a lower value channel and making videos can be higher effort (by the way YouTube is the second biggest search engine platform in the world). Facebook is pretty low effort and the value can be less as well, unless you are using targeted Facebook advertising, which can be higher value but also costs.

We're simply comparing and scoring these in relation to one another to get a feel for the return on investment, ROI, we can expect and where to deploy our resources and focus our efforts.

The Flywheel Effect

The power of simple reinforcing loops executed over time

Consider a gigantic, heavy flywheel — a massive metal disk set horizontally on an axle, 50 feet in diameter, 4 feet thick, and weighing 10,000 pounds. Assume your objective is to get the flywheel rotating as quickly and as much as feasible.

Pushing hard, you get the flywheel to move forward, almost slightly at first. Then, after a few hours of hard work, you keep going until the flywheel completes one total rotation.

You continue to push, and the flywheel begins to travel quicker, and with lots of hard work, you move it around a second rotation. You keep pressing in the same direction. With three spins, four, five, and six, the flywheel gains speed and momentum, moving faster with each turn.

Then, suddenly — breakthrough! The machine's momentum works in your favor, propelling the flywheel onward, turn after turn, sonic boom! Its massive weight supports you.

Jim Collins created this concept in his book "Good to Great" and recently published a study that expands on it. The flywheel is a system thinking concept in which the system is a reinforcing loop with the ability to take off over time.

Here is an example of an early version of Amazon's flywheel:

Bezos and his lieutenants sketched their virtuous cycle, which they believed powered their business. It went something like this: lower prices led to more customer visits. More customers increased sales volume and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.

Let me outline the flywheel that has driven me over the years:

The process begins with what I am curious about learning. That is the beginning of everything. If I'm interested in something, I can't help but want to learn about it and research it. That will throw me into the research. If I do the research right, throw myself into it, and stand those creative hours of the study, I cannot help but have ideas and insights from that research. If I have those ideas, I want to write them, teach them, and share them.

You never know where it goes. If you have an impact and reach in the world, then you can't help but have funding from that. Then, economics comes that allows you to do more.

I fund and feed my curiosity, which leads to the research, which then leads from chaos to concepts, which then leads to writing and teaching, which then leads to an impact on the world, which then generates funding, which then allows me to fund the next question. Then, it's perpetual.

It is essential to provide "grease" to ensure the steps in your flywheel have as little friction as possible. The example of good leadership to drive the core flywheel concepts in an organization highlights how "grease" works:

Connecting the goals with the values of the business

Distilling that connection into a simple message

Pushing that message down to EVERY person

Reinforcing the message, relentlessly

Imagine the "grease" effect of everyone knowing the main goals, how they relate to the business's core values, and how achieving those goals will positively affect them beyond their paycheck. That's total enterprise alignment.

Companies fail either through reinforcing the wrong behaviors or abandoning the flywheel concepts that gave them success.

In studying the fall of once-great companies, we see them abandoning the fundamental principles that made them great in the first place. They vest the wrong leaders with power. They veer from their focus and cease to get the right people involved. They fail to confront brutal facts. They stray far beyond their competency areas, throwing themselves into activities at which they could never become the best in class.

They subvert discipline with bureaucracy. They corrupt their core values and lose their purpose. And one of the most significant patterns exhibited by once-great companies that bring about their senseless self-destruction is failure to adhere to the flywheel principle

Accounting is the procedure of data entry and recording, summarizing, analyzing, and reporting financial data. The end product of accounting is the three financial statements: Income Statement, Balance Sheet, and Cash Flow Statement.

FIVE BASIC ACCOUNTING PRINCIPLES:

1: Revenue Recognition:

→ Revenue is recorded at the time of the transaction.

2: Matching Principle:

→ Assets are recorded at their acquisition cost.

3: Historical Cost:

→ Fiscal Year Income is compared with Calendar Year Expense.

4: Full Disclosure:

→ Full disclosure of all relevant info is made available.

5: Objectivity Principle:

→ Information in books should be true, relevant, & accurate.

5 CATEGORIES OF ACCOUNTING:

1: Assets:

→ All Tangible & Intangible items owned by the company.

2: Liabilities:

→ Amounts the company owes to others.

3: Equity:

→ Net Worth of Entity: Assets - Liabilities

4: Expenses:

→ Amount paid purchases made in business.

5: Income:

→ Amount earned by the company from the sale of goods.

JOURNAL VS LEDGER:

→Journal Entries consist of Debits & Credits, the totals of which should be equal

→Journal entries are then transferred to the appropriate Ledger Accounts

FINANCIAL STATEMENTS:

1: Income Statement:

→ Shows profit or loss during the period.

2: Balance Sheet:

→ A company's assets, liabilities, and equity at a point in time.

3: Statement of Cash Flow:

→ Shows the inflow and outflow of cash during the period.

DOUBLE ENTRY SYSTEM

→ Each Accounting Entry will have two sides - Debit and Credit.

THREE FIELDS OF ACCOUNTING:

→ Financial Accounting: Preparing the Financial Statements.

→ Managerial Accounting: Prepare reports for internal use.

→ Cost Accounting: Measure the performance of resources.

The Accounting Cycle

The Accounting Process, Visualized:

Step 1: Identify transactions

→Identify and document all financial transactions that occur within the accounting period.

Step 2: Prepare journal entries:

→Create journal entries to record the details of each transaction, including the accounts affected and the corresponding debits and credits.

Step 3: Record journal entries:

→Enter the journal entries into the general ledger, the central repository for all financial transactions.

Step 4: Prepare trial balance:

→Summarize the balances of all accounts in the general ledger to ensure that the debits equal the credits.

Step 5: Make adjusting entries:

→Make necessary adjustments to the accounts to ensure the accuracy of the financial statements, such as recording accrued expenses or prepaid income.

Step 6: Review adjusted trial balance:

→Verify that the adjusted trial balance reflects the correct account balances after making the adjustments.

Step 7: Produce financial statements:

→Generate financial statements, including the income statement, balance sheet, and cash flow statement, to provide an overview of the company's financial performance and position.

Step 8: Post closing entries:

→Close temporary accounts, such as revenue and expense accounts, to start the next accounting period with zero balances.

Step 9: Review post-closing trial balance:

→Confirm that the post-closing trial balance only includes permanent accounts and that the debits still equal the credits.

Step 10: Prepare journal entries:

→Prepare journal entries for the next accounting period to continue recording new transactions.

Bank Reconciliation - Manual vs Automated

Automation wasn't even in sight when I started preparing bank reconciliations as a general ledger accountant.

Yes, there was a time when you had to manually reconcile GL transactions and bank statements line by line.

Print them both and knock off reconciled items one by one.

You couldn't even download bank statements as CSV files.

The statements used to be paper-based and received in snail mail.

That also meant difficulty in reconciling bank accounts before the month-end close.

These days, life is much easier!

• Bank portal integration with the accounting software/ERP.

• Downloadable bank statements in the format you need.

• Automated reconciliation software.

You name it, you have it.

When entering transactions in the ERP system, one crucial consideration is that you must accurately tag each transaction so that the reconciliation software can read and compare it with the bank statement.

And tags should be aligned with the data provided by the bank.

Otherwise, reconciliation software is not very useful.

Remember, the review and approval process remains integral to bank reconciliation even after automation.

Here is a comparison of how accounting processes have evolved by leveraging technology.

1- Gathering Data

2- Match Transactions

3- Identify Differences

4- Adjustments

5- Ending Balances

6- Reconciliation

7- Review and Approval

8- Resolve Discrepancies

9- Final Reconciliation

13 Accounting Principles

Accounting is the language of business.

If you want to read financial statements, you MUST understand these 13 principles:

ACCOUNTING PRINCIPLES

→ The rules, benchmarks, and procedures in the accounting field companies should follow while reporting financial statements. In the United States, the common set of accounting standards is GAAP (Generally Accepted Accounting Principles).

ECONOMIC ENTITY

→The Owner & business are two different entities with separate liabilities.

REVENUE RECOGNITION

→ Revenue should be recognized using the accrual basis of accounting.

CONSERVATISM

→When there are two acceptable options for reporting, the less favorable option should be chosen.

CONSISTENCY

→The usage of methods and principles should be consistent until another method proves to be better.

HISTORICAL COST

→Assets should be recorded based on their original purchased value.

FULL DISCLOSURE

→All important information should be disclosed within the financial statements or as a footnote.

GOING CONCERN

→Business is assumed to carry on forever with no intention of liquidation.

MATCHING CONCEPT

→All debits should have a matching credit, and all credits should have a matching debit.

MATERIALITY

→Any information which will have a significant impact should be reported on the financial statements.

MONETARY UNIT

→Transactions that carry a monetary value should be recorded in terms of a monetary currency (Eg, Dollars)

RELIABILITY

→Transactions should only be recorded that can be proven & have significant evidence.

REVENUE TIMING

→ Revenues will be recognized at the time of the transactions regardless of whether payment has been made.

TIME PERIOD

→There should be a standardized time period for the reporting of the financial statements (Ex: Monthly, Quarterly, or Annually)

Do any of these principles need further explanation? If so, let me know in the comments section.

The basics of accounting

This PDF will teach you everything you need to know

Here's what you'll learn:

- Accounting Cycle & Accounting Equation

- List of Accounts and Its Classification

- Accounting Principles

- Journal Entries, Adjusting Entries, & Closing Entries

- Financial Statements

Accruals and Provisions

The Confusing Duo of Accounting. Let's Demystify!

Understanding the difference between accruals and provisions is fundamental for accurate accounting and financial reporting.

It is common for business owners or even us accountants to need clarification on the two.

But it doesn't have to be that way.

Not, at least, after the information I have put together to demystify the confusion.

This is what you will find in the excellent PDF attached:

1- The Confusion

2- The Reason for the Confusion

3- Why Understanding the Difference is Important?

4- Impact of Incorrect Classification?

5- The Concept

6- The Purpose

7- The Recognition

8- The Estimation

9- The Timing

10- The Reversal

11- The Adjustments

12- The Examples

13- The Impact on Cash Flow

14- The Accounting Treatment Process Flow

The General Ledger Closing Checklist

As I write this, I am helping a client streamline their month-end closing and reporting process, including developing and implementing best practices to close each function within the finance department.

Once complete, part of the project is to develop a management and board reporting pack to ensure a seamless record-to-report process.

The accuracy of the General Ledger is critical to achieving accurate and reliable reporting.

Accounting teams cannot avoid the task of closing the books at the end of the month.

It always seems like the next month-end closing is upon us before we close the previous month.

The cycle keeps repeating itself over and over again, like Groundhog Day.

For those days, checklists become handy to ensure we have completed each task necessary to close the month.

I'm a big fan of checklists. Atul Gawande's The Checklist Manifesto is a great book.

One such checklist is the general ledger closing checklist.

Here's something I've created for my client. I am sharing it with the broader audience.

It is helpful to take this and create one based on your processes and dates.

Here's what I have covered in the graphic:

1. Preparation and Planning

2. Review Subsidiary Ledgers

3. Adjusting Entries

4. Revenue Recognition

5. Expense Recognition

6. Depreciation and Amortization

7. Bank Reconciliation

8. Accruals

9. Financial Statement Preparation

10. Review and Approval

11. Documentation & Audit Trail

12. Adjusting Entries

13. Aging Reports

14. Post-Closing Adjustments

15. Final Review

Welcome to the world of Managerial Accounting! As you embark on this journey through the "Principles of Managerial Accounting pages," get ready to unlock the secrets behind the numbers that drive business decisions. This book is not just about crunching numbers; it's about understanding how those numbers tell the story of a business's financial health and guide strategic decisions.

Envision yourself as a pivotal figure in a company, entrusted with making decisions that can steer the course of success or failure. Managerial accounting equips you with the tools to navigate these challenges. From budgeting and cost analysis to financial planning and performance evaluation, you'll acquire the skills to gather, interpret, and utilize financial data, empowering you to make informed decisions that can shape the future of your organization.

Real-world scenarios serve as your guide, illustrating how businesses allocate resources, manage costs, and plan for the future. You'll delve into concepts like job order costing, process costing, and activity-based costing, which provide a clear understanding of the true cost of products and services. Armed with these insights, you'll be better prepared to enhance efficiency, reduce waste, and maximize profitability in any business setting.

Moreover, this book goes beyond traditional accounting. It delves into how accounting information supports managers in planning, directing, and controlling functions. You'll learn to analyze financial statements, develop budgets, and perform variance analysis—all essential skills for any aspiring manager or business leader.

So, why should you choose to delve into the comprehensive knowledge offered by the "Principles of Managerial Accounting"? Because it will not only equip you with the necessary knowledge but also empower you with the skills to make sound business decisions. Whether you're aspiring for a career in accounting, management, or entrepreneurship, this book serves as your gateway to mastering the language of business and becoming a strategic thinker in the corporate world.

Prepare to be inspired and challenged as you delve into the principles that underpin successful business management. Your journey into the heart of managerial accounting begins now.

Download the Managerial Accounting book.

All the principles you need to know

Chapter 1: Managerial Accounting Concepts

Chapter 2: Job Order Costing

Chapter 3: Process Costing

Chapter 4: Activity-Based Costing

Chapter 5: Cost Volume Profit Analysis

Chapter 6: Variable Costing Analysis

Chapter 7: Budgeting

Chapter 8: Variance Analysis

Chapter 9: Differential Analysis

Source: Christine Jonick, Ed. D

Cost Accounting Formulas

This PDF teaches you everything you need to know

Here's what you'll learn:

- Total Cost (TC)

- Average Cost (AC)

- Marginal Cost (MC)

- Contribution Margin (CM)

- Gross Profit (GP)

- Break-Even Point (BEP)

- Return On Investment (ROI)

- Cost of Goods Sold (COGS)

- Overhead Allocation

- Cost Variance

- Price Variance

- Labor Efficiency Variance

- Predetermined Overhead Rate (POR)

- Economic Order Quantity (EOQ)

- Cost of Quality (COQ)

- Production Volume Variance

- Margin of Safety

- Availability

- Reorder Point

- Takt Time

GAAP vs non GAAP

If accounting is the language of business, as we often teach, understanding its high-level concepts is essential.

Yet, when listening to insiders or stock market veterans, they often use industry jargon and alphabet soup acronyms without explaining what each means.

In today’s lesson, we will tackle one of accounting’s most confusing terms, which is crucial to understand when going through a company’s financial statements: GAAP, which stands for generally accepted accounting principles.

GAAP accounting is a commonly accepted set of rules and procedures designed to govern corporate accounting and financial reporting within the United States.

GAAP rules were jointly established by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

GAAP rules are applied to profitable corporations (overseen by the FASB) and government and non-profit organizations (regulated by the GASB).

This raises an important question: Why do companies report non-GAAP results if GAAP rules are for corporations?

Non-GAAP refers to accounting practices that do not comply with the GAAP standards. As a result, these metrics aren’t audited and don’t have a standardized reporting format.

Many companies report non-GAAP results to shareholders (in addition to their GAAP results) to add important color and nuance to their numbers that the GAAP standard misses.

However, it’s important to note that non-GAAP numbers can also disguise weaknesses in a company’s results.

Therefore, a discerning investor must carefully comb through the numbers, comparing the GAAP with the non-GAAP results, to see an accurate picture of companies’ finances.

Provisions in Accounting

Understanding provisions is critical to protecting your business from unexpected financial hits.

Here's a straightforward guide on everything you need to know.

A provision is an amount set aside from a company's profits to cover future liabilities or losses that are probable but uncertain in timing or amount.

It helps businesses prepare for potential financial obligations and ensure their financial statements reflect an accurate and fair view.

What Business Owners Should Know:

-> Provisions enable companies to present a clearer financial picture by accounting for future liabilities in the current period.

-> By setting aside funds for potential future expenses, provisions help businesses manage risks effectively.

-> Proper provisions ensure compliance with accounting standards and regulations, avoiding legal and financial penalties.

Managing provisions accurately is vital for your business's financial health and stability.

Ensure your financial statements reflect an accurate and fair view by properly accounting for future liabilities.

Intro to Financial Statements

What are financial statements?

The 3 Financial Statements

Understanding Financial Statements   

When you have completed this section of MBA ASAP, you will have a solid understanding of Financial Statements and you will be able to draw meaningful conclusions from their contents.  This knowledge can be highly impactful for the quality of your career, job prospects, and life.   

Financial Statements are the basic language of money and business. Everyone should have a basic understanding of Financial Statements: what they are and what information they provide.  It’s a competency that can open up opportunities and vistas that are closed off otherwise.        

Executives like the CEO, COO, and CFO routinely share and discuss financial data with marketing, operations, and other direct reports and personnel within an organization.  They also compile and share financial information with stakeholders outside the firm such as bankers, investors and the media.    

But how much do you really understand about finance and the numbers? A recent investigation into this question concluded even most managers and employees don’t understand enough to be useful. Check out the quiz in this section to see how you stack up.  I will offer the quiz again at the end of the course so you will be able to gauge how your level of financial competency has improved.    

Three Main Financial Statements   

There are three main financial statements and they are linked together to provide a picture of the financial position and health of an enterprise. They represent the end product of accounting, meaning they are the reports generated by accounting covering all of the transactions of a company.   

The three basic financial statements are the   

• Balance Sheet: which shows firm's assets, liabilities, and net worth on a stated date   

• Income Statement: also called profit & loss statement or simply the P&L: which shows how the net income of the firm is arrived at over a stated period, and    

• Cash Flow Statement: which shows the inflows and outflows of cash due to the firm's activities during a stated period.    

Knowing how to read and understand financial statements is a business skill you can’t ignore. It can help working your way up the corporate ladder by communicating with others in your company and understanding the big picture.  It is also a useful skill in order to understand where your efforts and work can make the most impact.    

When you are thinking about possibly changing jobs and working for a company you can check their financials and make sure they are a healthy organization.  If you are considering starting your own company you will need to have financials prepared by your accountant in order to talk to investors, bankers and vendors.    

If you want to invest wisely in the stock market, analyze the competition or benchmark your performance, you can look up the financials of any publicly traded company at the Securities and Exchange Commission website’s’ EDGAR filings and get an idea of how they are doing.  Check out any public company’s most recent 10K filing there.  A 10K is the Annual Report of the company and its most important business and financial disclosure document.          

Next we will go over each of the financial statements individually and how they are interrelated.  You will find lots more information in the books and other downloadable documents that accompany this course.

In this video I discuss that Financial Statements are what accounting produces.  Double entry bookkeeping and accounting helped usher in the modern world. History of Accounting and Commerce

The Fundamental Importance of Understanding Financial Statements

Being able to read and understand financial statements is a fundamental skill to understanding how businesses function. Since financial statements are the end product of accounting, understanding them provides the context for understanding accounting. Mastering this skill will help you become a better manager.

Being able to read financial statements will also help you make better investment decisions in the stock market because you will be able to get meaningful information out of an Annual Report or a 10K.

If you are an entrepreneur planning a startup then understanding financial statements is critical for your credibility as you meet with angel investors, bankers, and VCs.

Financial Statements

Accounting information is prepared, organized, and conveyed is in Financial Statements. Financial statements are reports in which accounting information is organized, so users of financial information have a consistent, quick, and thorough means of reading and understanding what is going on in the business.

There are two basic financial statements: the Balance Sheet and the Income Statement.

Interested parties need to understand the financial and accounting activities of a business. The Balance Sheet and Income Statement are a formal record of the economic activities of a company. They are presented in a structured manner and in a form that is consistent and easy to understand once you understand the format.

Financial Statements provide a high-level view of accounting and a summary of how a business is performing. They give a quick picture that can be easily compared across companies and industries. Understanding how to read and analyze a Balance Sheet and Income Statement is a great place to start understanding accounting and finance.

Financial statements are the end product of bookkeeping. Think of financial statements as the destination or goal of bookkeeping and accounting. When you know where you are going and who the audience is, it is easier to make good bookkeeping decisions. When you understand the liquidity, solvency, and capital structure of a company, you can make good financing and investment decisions.

Financial Statements contain information required to analyze and assess the relative health of a business quickly. A basic understanding of financial statements also provides the high-level perspective on the bookkeeping work and accounting entries' goals. The daily operations of a company are measured in the money that comes in as revenues, the money that goes out as expenses, the money that is retained as profit, the money invested in operational assets, and the money that is owed. It's all about the money. Financial statements let you follow the money.

Finally, understand the numbers side of Business. Financial Literacy matters to your career and success Senior executives routinely share and discuss financial data with marketing directors, operations chiefs, and other direct reports. But how much do those managers really understand about finance and the numbers? A recent investigation into this question concluded most managers understand not enough to be useful. Asked to take a basic financial-literacy exam—a test that any CEO or junior finance person should easily ace—a representative sample of U.S. managers from C-level executives to supervisors scored an average of only 38%. Lack of financial literacy matters and impacts an organization's ability to perform optimally. Those who can't speak the language of Business can't contribute much to a discussion of performance and are unlikely to advance in the hierarchy or reach their full potential. Does a lack of financial literacy matter? From a managers' point of view, it indeed does. Those who can't speak the language of Business can't contribute much to a discussion of performance and are unlikely to advance in the hierarchy. They may get caught off guard by financial shenanigans, as many employees at Enron were.

They also are unable to gauge the health of a prospective or current employer. The CFO of a small manufacturing company often asks candidates for engineering positions whether they would like to review the past two years of the company's financials. None yet have taken him up on the offer—knowing, perhaps, that they could make neither head nor tail of the statements. People don't tell their bosses that they don't speak finance. It's the usual human reluctance to admit ignorance. In a survey, managers were asked what happens in meetings when people don't understand financial data. The majority chose answers reflecting that reluctance, such as "Most people don't ask because they don't want to appear uninformed in front of their boss or peers." Don't let this be you. Take this course and understand Financial Statements.

Download the two attached eBooks for a thorough understanding of financial statements and the terms associated with them.

I'm proud to say that the National Association of Certified Valuators and Analysts are using MBA ASAP 10 minutes to Understanding Financial Statements as a pre-read to their Business Valuation Certification Program. Download your copy here and level up your financial literacy!

The Income Statement

The basic structure and components of the Income Statement are reviewed in this lecture. The Income Statement is sometimes called the Profit and Loss Statement or P&L for short.

The components of the Income Statement are:

• Revenue

• Expenses

• Net Income

• Profit

• Earnings

  
  

The Income Statement

The daily operations of a business are measured in the money that comes in as revenues, the money that goes out as expenses, the money that is retained as profit, the money that is invested in operational assets, and the money that is owed. It's all about the money. Financial statements follow the money.

The report that measures these daily operations, of money in and money out over a period of time, is the Income Statement.

Revenues minus Expenses equals Net Income

The Income Statement can be summarized as Revenues less Expenses equals Net Income. The term Net Income means Income (Revenues) net (less) of Expenses. Net Income is also called Profit or Earnings. The words "profits," "earnings," and "net income" all mean the same thing and are used interchangeably. They are synonyms for the bottom line number on the Income Statement. Revenues are often called Sales and are represented on the top line.

You understand the dynamics of this concept intuitively. We always strive to sell things for more than they cost us to make or buy. When you buy a house, you hope that it will appreciate in value so you can sell it in the future for more than you paid for it. It's also the rule for stocks: buy low, sell high. In order to have a sustainable business model, in the long run, the same logic applies. You can't sell things for less than they cost to make and stay in business for long. If you own run a sandwich shop, you had better make sure that you are selling the sandwiches for more than they cost you to make.

Think of the Income Statement in relation to your monthly personal finances. You have your monthly revenues: in most cases, the salary from your job. You apply that monthly Income to your monthly expenses: rent or mortgage, car loan, food, gas, utilities, clothes, phone, entertainment, etc. Our goal is to have our costs, or expenses, be less than our Income.

There is an adage: "If your outflow is more than your income, your upkeep is your downfall."

Over time, and with experience, we become better managers of our personal finances and begin to realize that we shouldn't spend more that we make. We strive to have some money left over at the end of the month that we can set aside and save. In business, what is set aside and saved is called Retained Earnings.

Some of what we set aside, we may invest with an eye toward future benefits. We may invest in stocks and bonds or mutual funds or invest in education to expand our future earning and career prospects. This decision is the same type of money management discipline that is applied in business. It's just a matter of scale. In business, we buy assets that help the enterprise expand or perform more efficiently. There are a few additional zeros after the numbers on a large company's Income Statement, but the idea is the same.

This concept applies to all businesses. Revenues are usually from Sales of products or services. Expenses are what you spend to support those sales in terms of the operations: Salaries, raw materials, manufacturing processes and equipment, offices and factories, consultants, lawyers, advertising, shipping, utilities, etc. What is left over is the Net Income or Profit. Again: Revenues – Expenses = Net Income.

Net Income is either saved in order to smooth out future operations and deal with unforeseen events (save for a rainy day); or invested in new facilities, equipment, and technology. Or part of the profits can be paid out to the company owners, called shareholders or stockholders, as a dividend.

The Income Statement is also known as the "profit and loss statement". Business people sometimes use the shorthand term "P&L," which stands for profit and loss statement. A manager is said to have "P&L responsibilities" if they run an autonomous division where they decide about marketing, sales, staffing, products, expenses, and strategy. P & L responsibility is one of the most critical responsibilities of any executive position. It involves monitoring the net Income after expenses for a department or entire organization, with direct influence on how company resources are allocated and responsibility for performance.

Google the term "income statement," and you will see lots of examples of formats and presentations. You will see variety depending on the business's industry and nature, but they all follow these basic principles.

Remember: Income (revenue or sales) – Expenses = Net Income or profit.

Learn Income Statements like a pro! With our guide, discover the basics of financial reporting and boost your financial knowledge!

1️⃣ What is an Income Statement?

An income statement, also known as a profit and loss statement (P&L), is a financial report that shows a company's revenues, expenses, and profits (or losses) over a specific period, typically a fiscal quarter or year.

2️⃣ Components of an Income Statement

Revenue (Sales): The total income from selling goods or providing services.

Cost of Goods Sold (COGS): The direct costs of producing the goods or services.

Gross Profit: Revenue minus COGS, representing the initial profit before operating expenses.

Operating Expenses: Costs related to the day-to-day operations of the business (e.g., salaries, rent, utilities).

Operating Income: Gross profit minus operating expenses, indicating the profit from core operations.

Non-Operating Income (Expenses): Additional income or expenses not directly related to core operations.

Net Income (Profit or Loss): The final result indicates the overall profit or loss after all income and expenses.

3️⃣ Analysis of an Income Statement

To evaluate a company's Income Statement, various margins and ratios are used:

Profit Margin

(Net Income / Revenue) x 100

Gross Margin

(Gross Profit / Revenue) x 100

Operating Margin

(Operating Income / Revenue) x 100

EBITDA Margin:

(EBITDA / Revenue) x 100

Revenue Growth Rate:

((Current Period Revenue – Previous Period Revenue) / Previous Period Revenue) x 100

Return on Equity (ROE):

(Net Income / Shareholders' Equity) x 100

Return on Assets (ROA):

(Net Income / Total Assets) x 100

4️⃣ Interpreting an Income Statement

Positive Net Income: The company is profitable, and the amount represents its earnings for the period.

Negative Net Income: The company incurred losses for the period.

Trends: Analyze trends over multiple periods to assess the company's financial health.

Comparisons: Compare the income statement with those of competitors or industry standards for benchmarking.

5️⃣ Importance of the Income Statement

• Investor Insight

• Management Tool

• Creditworthiness

• Strategic Planning

• Legal Compliance

• Transparency and Trust

• Benchmarking

3 Easy Steps to Analyze Business Profitability.

Most business problems fall into one of 3 main areas:

Profitability: How effectively your business generates profit in relation to its expenses.

Cash Flow: The management of the inflow and outflow of cash, ensuring that your business can meet its financial obligations.

Growth: The ability of your business to expand sustainably and profitably.

Financial analysis is a key tool in identifying and addressing these three critical business issues.

Here's how to solve profitability issues:

1️⃣ Gross Profit Margin: (Gross Profit / Revenue) x 100

>> This tells you how efficiently you use raw materials and labor.

>> Drops could be due to increased costs or ineffective pricing.

>> If this margin is dropping, look to renegotiate contracts, trim waste in production, or tweak prices

2️⃣ Operating Profit Margin: (Operating Income / Revenue) x 100

>> This shows how much of each dollar of revenues is left after considering COGS and OPEX (operating expenses).

>> If this margin is dropping, your indirect costs may need to be reviewed because you lack operating flexibility.

3️⃣ Net Profit Margin: (Net Income / Revenue) x 100.

>> Net Profit is what's left of revenues after all expenses and taxes are paid.

>> If this margin is dropping but your other margins are fine, consider tax and debt cost optimization.

>> If this margin drops alongside your other margins, your business model and capital structure may need an overhaul.

The P&L Statement, Visualized

If you're in business, you MUST understand how a Profit & Loss Statement works.

P&L has many different names, including:

• Income Statement

• Revenue Statement

• Earnings Statement

• Operating Statement

• Statement of Earnings

• Statement of Operations

The P&L shows a company's profitability at multiple levels over a period of time using accrual accounting.

Its purpose is to track a company's revenue, expenses, and profits.

Main sections:

? REVENUE: Total Sales

➖ COST OF GOODS SOLD: The cost to deliver the product or service

? GROSS PROFIT: Revenue - Cost of Goods Sold

➖ R&D EXPENSES: All expenses related to developing products & services

➖ SG&A EXPENSES: All other overhead expenses

? OPERATING INCOME: Gross Profit - Operating Expenses

➖ INTEREST EXPENSE: Interest paid to bondholders & banks

? PRE-TAX INCOME: Operating Income - Interest Expense

➖ INCOME TAX: Taxes paid to Governments

? NET INCOME: Pre-Tax Income - Income Tax

To analyze a P&L quickly, focus on changes in margins.

GROSS MARGIN

Gross margin is a profitability metric that indicates the percentage of revenue after subtracting the cost of goods sold (COGS).

Calculation

Gross Margin = Gross Profit / Revenue

Gross Profit = Revenue - COGS

OPERATING MARGIN

Operating margin, or operating profit margin, measures the percentage of operating income (profit after operating expenses) relative to total revenue.

Calculation

Operating Margin = Operating Income / Revenue

NET MARGIN

Net margin, also referred to as net profit margin or simply profit margin, represents the percentage of net income (profit after all expenses, including interest and taxes) relative to total revenue.

Calculation

Net Margin = Net Income / Revenue

How do we analyze companies?

Start with the income statement.

It can show us the revenues, expenses, and profits over a specific period.

The income statement can give us insights into whether the company is growing or shrinking.

Here is the breakdown of an income statement in its most common form:

???????: This includes all income from sales, services, or other primary business activities.

???? ?? ????? ???? (????): Direct costs attributable to the production of goods sold by a company.

????? ??????: Calculated as Revenue minus Cost of Goods Sold. It represents a company's profit after deducting the costs associated with making and selling its products.

????????? ????????:

???????, ???????, ??? ?????????????? ???????? (??&?): Expenses related to selling products and managing the business.

???????? ??? ??????????? (?&?): Costs of developing new products or services.

????????? ?????? is Earnings Before Interest and Taxes (EBIT), which is calculated by subtracting operating expenses from gross profit.

???????? ???????: The cost incurred by an entity for borrowed funds.

????? ??????/????????: Non-operational revenue or costs, such as gains or losses from investments or foreign exchange.

???-??? ??????: Income before income taxes are deducted.

Income Tax Expense: The amount of tax owed based on pre-tax income.

??? ??????: The final bottom line of the income statement, calculated as Pre-tax Income minus Income Taxes. This figure represents the total earnings attributable to shareholders after deducting all expenses.

Also crucial to analyzing an income statement is margins:

• Gross margin = Gross profit/revenues

• Operating margin = Operating profit/revenues

• Net Income margin = Net Income profit/revenues

Ideally, we want stable or growing margins.

The bottom line is that we want a growing, profitable company that can lead to further digging.

4 Types of Income Statement Analysis

1. Vertical Analysis:

Vertical analysis dissects the income statement vertically, showcasing each line item as a percentage of total revenue.

This method offers a snapshot of the proportion of expenses, making it easier to identify trends and assess cost structures.

2. Horizontal Analysis:

By comparing income statements across multiple periods, horizontal analysis unveils the evolution of financial performance over time.

Understanding year-over-year changes aids in identifying growth patterns, potential areas of concern, and overall business stability.

3. Ratio Analysis:

Ratios derived from income statement figures provide a deeper understanding of a company's financial health.

Key ratios like the profit margin, return on assets, and earnings per share offer valuable insights into profitability, efficiency, and overall operational effectiveness.

4. Common Size Analysis:

This analysis involves expressing each line item as a percentage of total revenue.

It provides a standardized view of the income statement, facilitating comparisons across different companies or industries.

Common size analysis helps investors and analysts evaluate the relative importance of each expense category.

Embracing these diverse analytical approaches empowers financial professionals to make informed decisions, assess risk, and strategize for sustained business success.

Balance Sheet Basics

The Balance Sheet is a condensed statement that shows the financial position on a specified date, usually the last day of an accounting period.

Among other items of information, a balance sheet states

• What Assets the entity owns,

• How it paid for them,

• What it owes (its Liabilities), and

• What is the amount left after satisfying the liabilities (its Equity)

Balance sheet data is based on what is known as the

Accounting Equation: Assets = Liabilities + Owners' Equity.

Think of a Balance Sheet in terms related to everyday life. Homeownership, when you have a mortgage, is represented as a Balance sheet. Your homeownership has the three components of Asset, Liability, and Equity. The Asset is the value of the house and an appraisal determines the value. An appraisal considers recent sales of homes in the area and compensates for differences like the number of bath or bedrooms, the size of the lot, etc.

The Liability is the mortgage. The liability is how much you owe against the house. The Equity is the difference between the value of the Asset and the amount of the Liability. If your home is worth $200,000 and you have a remaining mortgage balance of $150,000, then you have $50,000 in Equity. We sometimes call this homeowner's Equity.

If your mortgage balance is more than the home's value, you are considered "upside-down" or "under water". The same principle applies to a business: if the value of its Liabilities is more than the Assets' value, then the business is insolvent and probably headed for bankruptcy.

A Balance Sheet is organized under subheadings such as current assets, fixed assets, current liabilities, Long-term Liabilities, and Equity. Along with income statement and cash flow statement, it comprises the financial statements; a set of documents indispensable in running a business.

What does the Balance Sheet balance?

The balance sheet is structured to show the amount and type of assets an enterprise owns and how those assets are funded. One side of the balance sheet shows what you have (assets), and the other side shows how you paid for it (Debt and Equity).

Assets can be purchased and paid for in two ways: with debt or Equity (or a combination of the two). What a company owes, the debts or loans, are called Liabilities; what a company owns is the Equity or Stock.

The Liabilities and Equity are equal to the Assets. They are two sides of the same coin, and they must balance; hence the term Balance Sheet. This balance concept is a fundamental principle of Accounting called the Accounting Equation. Assets = Liabilities + Equity.

Balance Sheet Format

A Balance Sheet is typically organized in two columns with the Assets on the left and the Liabilities and Equity on the right. It is divided into subcategories with the most current types on top and the more long-term varieties towards the bottom.

Current Assets are items like cash that can be used on short notice, and Long term Assets are things like factories that would take longer to convert to cash. Current means short term; stuff that needs to be addressed within one year. Long-term means stuff longer than the next year.

Bills that need to be paid within the month are considered Current Liabilities and loans that are paid back over years are considered Long term Liabilities.

Equity is what the owners actually own. Equity is Assets less the Liabilities and is shown as accounts below the Liabilities on the left-hand side. Equity is shown below the Liabilities because debt has senior claims on the assets. In the event of liquidation like a bankruptcy, the debt holders get paid from the sale of assets first and then anything left over goes to the equity holders.

Attached is an example Balance Sheet to get an idea of the format; notice that the Total Assets equals the Total Liabilities plus Equity.

The Balance Sheet Explained Simply

The master equation: Assets = Liabilities + Shareholder Equity

TIME: The Balance Sheet records a Point in Time

ACCOUNTING METHOD: Accrual

3 Main Sections:

ASSETS: What the company Owns

LIABILITIES: What the company Owes to creditors

EQUITY: The net value of the owner's claim

ASSETS

They are listed in order of liquidity (how quickly it can be turned into cash).

CURRENT ASSETS: Expected to be used in <1 year

→Cash

→Marketable Securities

→Accounts Receivable

→Inventory

→Other Current Assets

LONG-TERM ASSETS: Expected to be last >1 year

→Long-Term Investments

→Fixed Assets

→Goodwill

→Other Long-Term Assets

LIABILITIES

Listed in order of when they are expected to be paid off.

CURRENT LIABILITIES: Expected to be paid in <1 year

→Payables & Accrued Expenses

→Short-Term Debt

→Other Current Liabilities

LONG-TERM LIABILITIES: Expected to be paid in >1 year

→Long-Term Debt

→Other Long-Term Liabilities

SHAREHOLDER'S EQUITY

CAPITAL RAISED FROM INVESTORS

→Preferred Stock

→Common Stock & Additional Paid-In Capital

PROFITS RETAINED BY THE COMPANY

→Retained Earnings

→Treasury Stock

I'll teach you How to Read a Balance Sheet in 7 minutes.

I've spent 30+ years studying Finance, with 15 as a public company CFO.

This post is a "cheat sheet" ebook on how to read a Balance Sheet in 7 minutes:

• What does the balance sheet tell you?

• What is the structure of the balance sheet?

• What are Assets?

• What are Liabilities?

• What is Equity?

• How do you analyze a balance sheet?

Here is a quick analysis of the balance sheet:

??????? ??????

Calculate the working capital (current assets - current liabilities) to assess the company's liquidity.

????

calculate cash to short-term liabilities to review any potential liquidity issues in the very short term.

??????? ???????????

Calculate dso to see how quickly the company collects cash.

???????????

Calculate dio to see how the company is efficient in converting inventories into cash

????? ??????

Check the efficiency with fixed asset turnover evaluation.

Evaluate fair value, especially for intangibles.

??????? ???????????

Calculate the current ratio and quick ratio to assess liquidity.

??????? ????????

Calculate Days Payable Outstanding (DPO) to track how quickly a company pays a bill and tends to prolong terms.

????? ???? ????

The top priority in payment. Make sure the company is able to meet its immediate financial obligations.

???-??????? ????

Evaluate debt-to-asset ratio to determine solvency.

??????

Calculate the equity ratio (equity / total assets) to understand stability

ROE (net income/equity) to understand the profitability

???? ???? ??? ?? ???? ?? ????? ????????

1. understand the meaning of the ratio

2. result interpretation

3. compare with last period, budget and industry peers

4. action plan

Here's how you can be a financial expert by analyzing balance sheets:

?????????? ??? ??????:

==============

Grasp the fundamental concepts of assets, liabilities, and equity. Familiarize yourself with the balance sheet equation: Assets = Liabilities + Equity.

??????? ??????? ??? ???-??????? ??????:

==========================

Assess the company's ability to convert its assets into cash within a year. Evaluate the value of long-term assets like property, plant, and equipment.

?????????? ???????????:

============

Evaluate the company's short-term and long-term obligations. Understand how these obligations impact the company's financial flexibility.

??????? ?????? ???????????:

==================

Analyze the company's common stock and retained earnings. Assess the ownership structure and the company's ability to generate profits over time.

?????? ??? ??????:

============

Utilize ratios like the current ratio, debt-to-equity ratio, and debt-to-asset ratio to gain insights into the company's financial strength and efficiency.

???????? ????????? ???? ?????:

=================

Be vigilant about red flags like increasing accounts receivable, rising inventory, and high debt levels. These signals could indicate potential financial risks.

????????? ??? ???????:

================

Benchmark the company's balance sheet ratios against industry peers to assess its relative financial position.

??????? ?????????? ????????:

====================

Financial analysis is not an exact science. To enhance your expertise, stay informed about financial trends, accounting standards, and industry developments.

What is Working Capital?

Here's a simple way to understand this confusing finance term.

Working capital -- aka Net Working Capital -- is the difference between a company's current assets (expected to be used/consumed/converted into cash <1 year) and current liabilities (debts that are expected to be paid off in <1 year).

Why is working capital important?

Working Capital is a quick way to assess a company's liquidity, which is its ability to meet its short-term obligations.

It serves as an indicator of a company's financial health.

If working capital is positive, it indicates that a company has sufficient resources to cover its short-term financial needs.

If working capital is negative, it indicates that a company may face financial difficulties.

There are three ways to calculate working capital:

THE SIMPLE METHOD

Current Assets - Current Liabilities

This is the most common method and easiest to calculate.

THE NARROW METHOD

(Current Assets - Cash) - (Current Liabilities - Debt)

This method excludes cash & debt, which can help compare companies with different capital structures.

THE SPECIFIC METHOD:

Accounts Receivable + Inventory - Accounts Payable:

This method focuses on the cash conversion cycle of a business, which is the time it takes to convert inventory into cash.

Fixed Assets

Life Cycle Management System

I have spent most of my career managing fixed assets in various capacities. Regardless of my position, fixed assets management found its way to me.

Fixed assets are a tedious and cumbersome area of accounting, especially if you have an extensive database of fixed assets like mine.

It takes time and effort to keep your fixed asset register clean and reconciled, and it also requires continuous physical effort to conduct physical verifications and tagging projects.

Nevertheless, to manage your fixed assets well, you need a sound system that enables you to reconcile your fixed assets register (FAR) and prevent errors.

I included the system functionalities and equipment you need to manage fixed assets life cycle and conduct physical verification and tagging exercises:

You'll find:

1- Must-Have System Functionalities

2- Mandatory Fields

3- Reports that you must be able to generate

4- Must Have Options

5- Nice to Have Options

6- Equipment for Physical Verification & Tagging

Two options:

a) Barcode Tagging

b) RFID Tagging

In this lecture I review the Balance Sheet and Income Statement and how they are connected and the flow of money through them.  This is a summary and preparation for discussing the Cash Flow Statement. 

In this lecture I talk about Accrual Accounting and the Matching Principle and why they are so important.  Then I discuss the impact of these concepts on the Balance Sheet and Income Statement.  Then I talk about Liquidity Ratios and the Current Ratio and the Quick Ratio. 

So this lecture starts to tie together Accounting, Financial Statements, Corporate Finance, and Financial Analysis.

DEPRECIATION

DEPRECIATION is an accounting method used to allocate the cost of tangible assets (such as buildings, machinery, and vehicles) over their useful lives. It represents the systematic reduction in an asset's value due to wear and tear, obsolescence, or other factors.

Depreciation happens to TANGIBLE Assets (you CAN touch them)

Examples:

• Car

• Equipment

• Buildings

3 DEPRECIATION METHODS

STRAIGHT - LINE

The most common and easiest method to calculate depreciation. To use this depreciation method, you need to divide the cost of an asset by the useful life of an asset (in years).

FORMULA: Cost / Useful Life

DECLINING BALANCE

Used to calculate large depreciation expenses or assets that quickly lose value. Multiply the opening book value by the depreciation rate.

FORMULA: Opening book value x (100% / Useful Life of asset)

SUM OF THE YEARS DIGITS

An accelerated depreciation method increases the expense in the early years and lowers it in the latter years. Multiply the cost of an asset by its useful life over the sum of the years digits.

FORMULA: Cost x ( Useful life / Sum of the Years digits)

See the infographic for examples!

Depreciation is the last concept I present in preparation of discussing the Cash Flow Statement.  Depreciation is an accrual concept that creates an asset on the Balance Sheet and a non-cash expense during the asset's useful life.  Depreciation then gets reconciled with cash in the Cash Flow Statement.  You are really starting to become a savvy business person!

EBITDA Explained

What is EBITDA, and what is your take on this metric?

EBITDA stands for:

• Earnings

• Before:

• Interest

• Taxes

• Depreciation

• Amortization

It's a financial metric that shows how much money a company makes before accounting for non-operational expenses like interest and taxes and non-cash expenses like Depreciation and Amortization.

Why is EBITDA important for Businesses?

EBITDA is important because it gives businesses an idea of how much money they generate from their operations.

This is useful for investors and lenders who want to know how profitable a company is.

It's like a scorecard to know how much money a company is making.

How is EBITDA calculated?

To calculate EBITDA, start with a company's revenue and subtract its cost of goods sold.

Then, you subtract its operating expenses (like salaries and rent).

Another way to calculate it:

Net Income

+ Interest Expense

+ Taxes

+ Depreciation

+ Amortization

EBITDA vs. Net Income

EBITDA:

In EBITDA, you don't consider these expenses: Depreciation, Taxes, and Interest.

Net Income:

However, net income is what remains as actual profit after Depreciation, interest, and taxes are taken into account.

I've spent 35 years studying Finance, with 15 as a CFO, and

I'll teach you everything you need to know about the Statement of Cash Flows (SCF) in the next 7 minutes:

• What does the SCF tell you?

• What are the different types of cash flows?

• What are operating activities?

• What are investing activities?

• What are financing activities?

• How do you analyze the SCF?

How to Analyze a Cash Flow Statement

Earnings are an opinion; cash flow is a fact.

The Cash Flow Statement is by far the most important Financial Statement.

I'll teach you everything here.

1️⃣What is a Cash Flow Statement?

- A cash flow statement shows you how much cash goes in and out of a company over a certain period

- The purpose of this statement is to track how much cash is moving through a business

- You want to invest in companies that generate cash and manage their cash position well

2️⃣Structure of a Cash Flow Statement

Every cash flow statement consists of 3 parts:

• Cash Flow from Operating Activities

• Cash Flow from Investing Activities

• Cash Flow from Financing Activities

3️⃣Cash Flow from Operations

- This section shows all cash the company generated from its normal business activities

- It shows you all the cash a company earned from selling its normal products and services

- The cash flow from operating activities is comparable to net income, but it filters out a few income and expense posts that didn't cause actual cash to enter or exit the company

- Cash Flow from operating activities = net income + non-cash charges +/- changes in working capital

4️⃣Cash Flow from Investing Activities

The Cash Flow from Investing Activities gives you an overview of the company's investment-related income and expenditures.

- The Cash Flow from Investing Activities consists of 3 major parts:

o Capital expenditures (CAPEX)

o Mergers & Acquisitions

o Marketable securities

- Cash flow from investing activities = Sale of marketable securities + divestments - CAPEX - Mergers & Acquisitions - purchase of marketable securities

5️⃣Cash Flow from Financing Activities

- Measures the cash movements between a company and its owners (shareholders) and its debtors (bondholders)

- This section gives you an insight into how the company is financing its business activities

- Cash Flow from Financing Activities = Debt issuance + issuance of new stocks - dividends - debt repayments - share buybacks

6️⃣Changes in cash balance

- Finally, you can calculate the total changes in the cash balance

- Cash at the end of the year = Cash at the beginning of the year + CF from operating activities + CF from investing activities + CF from financing activities

EBITDA vs. Free Cash Flow vs. FCFF vs FCFE

Ultimate grudge match of cash flows. Which one is the best?

EBITDA

????:

1. ?????????? ???????? ???????? - EBITDA removes non-operating costs like taxes and interest expenses, as well as non-cash charges depreciation and amortization.

2. ?????????? ??????????????: Investors often use EBITDA to assess a company's potential profitability and cash flow capabilities.

????:

1. ?????????? ????????? ??????: EBITDA can overstate a company's performance by ignoring expenses like capital expenditures and changes in working capital.

2. ????? ???????????????: GAAP does not define EBITDA, which can lead to wild adjustments.

FCF (Free Cash Flow)

????:

1. ???? ???? ??????????: FCF measures the actual cash a company generates after accounting for cash outflows to support operations and maintain capital assets.

2. ??????????? ??? ????????????: High FCF provides more flexibility for the company to invest in growth opportunities, pay dividends, and reduce debt.

????:

1. ????????: FCF can be highly volatile and influenced by irregular capital expenditures and changes in working capital.

2. ?????’? ??????? ??? ?????? ???????????: FCF can be negative in growth periods where heavy investments are made.

FCFF (Free Cash Flow to Firm)

????:

1. ????????? ????????: FCFF is used in DCF model to value a company.

2. ?????? ??? ??? ?????????: Focuses on all the cash flows available to shareholders (debt, equity).

????:

1. ??????? ?? ?????????: FCFF calculation involves adjusting net income for non-cash items and changes in working capital.

2. ??????? ??????? ???? ?????????: While FCFF gives a total view of cash flow, it does not account for the financial structure effects (debt vs. equity).

FCFE (Free Cash Flow to Equity)

????:

1. ?????? ??????????? ?????: FCFE calculates shareholders' distributable cash post-expenses, reinvestments, and debt.

2. ????????? ?? ???????? ?????????: High FCFE suggests that a company has the potential to maintain or increase dividends.

????:

1. ????????? ?? ???? ?????????: Changes in debt levels can significantly affect FCFE.

2. ???????? ??????? ????????????: FCFE may overlook required capital, potentially exaggerating payout capabilities.

Free Cash Flow

Download the PDF; it teaches you everything you need to know.

1️⃣ What is free cash flow?

A company's free cash flow is equal to all the cash that enters it minus all the cash that leaves it over a certain period.

You can calculate it as follows:

Free cash flow = operating cash flow - CAPEX

The operating cash flow measures the cash generated by a company's regular business operations.

Capital expenditures (CAPEX) show how much money a company has used to maintain or buy physical assets.

2️⃣ What can a company do with its FCF?

The company can do different things with its free cash flow:

▪️ Reinvest for organic growth

▪️ Pay down debt

▪️ Acquisitions and takeovers (M&A)

▪️ Paying out dividends

▪️ Buying back shares

3️⃣ FCF Margin

This metric indicates how much cash a company generates per dollar in sales.

FCF margin = (free cash flow/sales)

Visa, for example, has a free cash flow margin of 60.2%.

For every $100 in sales, Visa generates $60.2 in pure cash.

4️⃣ FCF > Net Income

Earnings are an opinion; cash is a fact.

While earnings are an accounting metric, free cash flow looks at the money that actually entered and left the firm over a certain period.

5️⃣ FCF Conversion

The more earnings are translated into. FCF, the better.

FCF Conversion = (free cash flow / net earnings)

Seek companies with an FCF conversion of at least 85%.

6️⃣ Free cash flow yield

The free cash flow yield (FCF Yield) of a company is a great way to assess its valuation.

Free cash flow yield = (Free cash flow per share/ stock price)

The higher this ratio, the cheaper the stock.

Cash Flow is King

What is free cash flow yield, and why is it important?

In running a business, nothing beats real cash on hand.

In the investment world, cash flow, especially free cash flow, is essential to understand a company's stability and capital strength.

The Power of Free Cash Flow

Free cash flow is the money left after a company pays its expenses, taxes, interests, and capital expenditures. In addition, dividends, debt payments, stock buyback, and growth investments come from free cash flow.

When a company earns a positive free cash flow, it generates more cash than it needs to operate its business and can invest in growth.

Free cash flow (FCF) = Operating cash flow minus capital expenditure.

A company's cash flow statement is where operating cash flow and capital expenditure items are found.

Free cash flow is not net income because net income does not measure a company's actual cash position. For example, if a company increases revenue in the form of accounts receivable to be collected next year, the company has not received the cash yet. So, an increase in accounts receivables will reduce cash flow even though the revenue is reported in the net income number.

Therefore, free cash flow (FCF) is a better number than net income to measure a company's performance and how much cash is available to distribute to shareholders and invest for future growth.

Companies can manipulate their Net Income number but cannot mess around with free cash flow.

What is Free Cash Flow Yield?

Free Cash Flow Yield is calculated by comparing a company's free cash flow per share to its stock price per share.

Free cash flow yield (FCFY) = Free Cash Flow per Share/Price per Share

The higher the free cash flow yield, the more valuable the company is because of its stronger ability to pay off debt, distribute cash to shareholders, and invest for its benefit and growth.

Warren Buffett likes to look at cash flow rather than earnings multiples to determine if an investment is a value or not.

“I wouldn't look for a single metric like relative P/Es to determine what — how — to invest money. You really want to look for things you understand, and where you think you can see out for a good many years, in a general way, as to the cash that can be generated from the business. And then, if you can buy it at a cheap enough price compared to that cash, it doesn't make any difference what the name attached to the cash is. “

Warren Buffett

What to Look For When Screening Investments

You have probably heard of "value" and "growth" stocks and wondered how to tell them apart and the benefits of one versus the other. Unfortunately, the two terms are arbitrary to a degree.

We want a screening tool that is less vague and subjective and more quantitative and objective.

Rather than looking for a value or growth stock, a better way to screen investments is to look at the free cash flow yield to understand the company's business strength compared to its market value.

In a risk-off environment, investors care for quality and cash flow.

A persistent negative free cash flow may signify a company is becoming illiquid and cannot sustain its operations.

A negative free cash flow yield is not always bad. If the company is investing for the future and is expecting a higher investment return than the cash paid, like in a high-growth company, the temporary negative free cash flow yield needs to be investigated against the company's business needs and potential.

When measuring investment options, cash is King.

The Cash Conversion Cycle - Visualized

What is it? Why is it important?

The Cash Conversion Cycle (CCC) is not just a theoretical concept but a practical tool that measures how efficiently a company manages its working capital. Understanding CCC can help you identify areas for improvement in your business operations.

It is the time period between when a company purchases inventory from its suppliers and when it collects the cash from customers.

A shorter CCC is a sign of efficient business operations. This means the company can quickly convert its investments into cash, available for other business needs. This improves the company's liquidity and allows it to respond more effectively to market changes and opportunities.

The CCC is measured in days.

The formula for CCC is straightforward: it's the sum of the Days Inventory Outstanding (DIO), the Days Sales Outstanding (DSO), minus the Days Payable Outstanding (DPO).

DIO = Days Inventory Outstanding = (Average Inventory/COGS) × 365

DSO = Days Sales Outstanding = (Average AR/ Credit Sales) x 365

DPO = Days Payable Outstanding = (Average AP/ COGS) x 365

AR = Accounts Receivable

AP = Accounts Payable

COGS = Cost of Goods Sold

A bad CCC is 90+ days.

An average CCC is between 30 and 90 days.

A good CCC is <30 days.

A GREAT CCC is <0, which means the company collects cash from customers before it pays its suppliers.

Financial statements aren't just for accountants or finance teams.

They are a guidebook for various stakeholders, from investors to competitors.

Each user has a unique perspective and focuses on different aspects of these statements.

Grasping the diverse uses of financial statements can provide a significant competitive edge, empowering you as a business or finance professional in strategic decision-making and relationship-building.

Return on Invested Capital  ROIC

Return on invested capital (ROIC) measures a firm's profit over the typical cost of the debt and equity capital it uses.

The value of other businesses can be determined using the return on invested capital as a benchmark.

The efficiency with which a company directs the funds under its control toward successful investments or projects is measured by its return on invested capital (ROIC). The ROIC ratio demonstrates how effectively a business generates returns from its capital (equity and debt). Investors determine the effectiveness of a company's use of invested capital by contrasting its return on invested capital with its weighted average cost of capital (WACC).

Calculate ROIC as EBIT/(debt + equity)

How to analyze a business, FAST:

Study these 12 accounting ratios.

PROFITABILITY RATIOS

→ Gross Profit Margin = Gross Profit ➗ Sales

→ Operating Margin = Operating Profit ➗ Sales

→ EBITDA Margin = EBITDA ➗ Sales

→ Net Profit Margin = Net Income ➗ Sales

RETURN ON CAPITAL RATIOS

→ Return on Equity = Net Income ➗ Total Equity

→ Return on Assets = Net Income ➗ Total Assets

→ Return on Capital Employed = EBIT ➗ (Total Assets - Current Liabilities)

→ Return on Invested Capital = NOPAT ➗ Invested Capital

LIQUIDITY RATIOS

→ Current Ratio = Current Assets ➗ Current Liabilities

→ Cash Ratio = Cash & Cash Equivalents ➗ Current Liabilities

FINANCIAL LEVERAGE RATIOS

→ Debt Ratio = Total Debt ➗ Total Assets

→ Debt To Equity Ratio = Total Liabilities ➗ Total Equity

DIVIDEND POLICY RATIOS

→ Payout Ratio = Dividend Per Share ➗ Earnings Per Share

→ Dividend Yield = Dividend Per Share ➗ Share Price

Notes:

EBT = Earnings Before Tax

EBIT = Earnings Before Interest & Taxes

EBITDA = Earnings Before Interest, Taxes, Depreciation & Amortization

NOPAT = Net Operating Profit After Tax

What ratios do you look at the most?

The Most Important Financial Ratios

Including:

1️⃣ Liquidity Ratios

2️⃣ Profitability Ratios

3️⃣ Efficiency Ratios

4️⃣ Solvency Ratios

5️⃣ Valuation Ratios

6️⃣ Return Ratios

7️⃣ Coverage Ratios

8️⃣ Growth Ratios

9️⃣ Market Ratios

? Payout Ratios

Download the MBA ASAP Financial Ratios Handbook for the Most Important Financial Ratios with their Formulas. Here is what you will find:

Liquidity Ratios:

- Current Ratio: Current Assets / Current Liabilities

- Quick Ratio: (Current Assets - Inventory) / Current Liabilities

- Cash Ratio: Cash and Cash Equivalents / Current Liabilities

Profitability Ratios:

-Net Profit Margin: Net Profit / Revenue

-Gross Profit Margin: (Revenue - Cost of Goods Sold) / Revenue

-Return on Assets (ROA): Net Income / Average Total Assets

Efficiency Ratios:

-Inventory Turnover: Cost of Goods Sold / Average Inventory

-Receivables Turnover: Revenue / Average Accounts Receivable

-Asset Turnover: Revenue / Average Total Assets

Solvency Ratios:

-Debt to Equity Ratio: Total Debt / Shareholders' Equity

-Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense

-Debt Ratio: Total Debt / Total Assets

Valuation Ratios:

-Price-to-Earnings (P/E) Ratio: Market Price per Share / Earnings per Share (EPS)

-Price-to-Book (P/B) Ratio: Market Price per Share / Book Value per Share

-Dividend Yield: Dividends per Share / Market Price per Share

Return Ratios:

-Return on Equity (ROE): Net Income / Average Shareholders' Equity

-Return on Investment (ROI): Net Profit / Investment Cost

-Return on Capital Employed (ROCE): Earnings Before Interest and Taxes (EBIT) / Capital Employed

Coverage Ratios:

-Fixed Charge Coverage Ratio: (EBIT + Lease Payments) / (Interest + Lease Payments)

-Debt Service Coverage Ratio: Net Operating Income / Debt Service

Growth Ratios:

-Earnings Growth Rate: (Current Year EPS - Last Year EPS) / Last Year EPS

-Sales Growth Rate: (Current Year Sales - Last Year Sales) / Last Year Sales

-Dividend Growth Rate: (Current Year Dividends - Last Year Dividends) / Last Year Dividends

Market Ratios:

-Market Capitalization: Number of Shares Outstanding * Market Price per Share

-Earnings per Share (EPS): Net Income / Weighted Average Shares Outstanding

-Dividends per Share: Total Dividends Paid / Number of Shares Outstanding

Payout Ratios:

-Dividend Payout Ratio: Dividends per Share / Earnings per Share

-Retention Ratio: (Net Income - Dividends) / Net Income

Learning and understanding these ratios can empower financial professionals like you to make informed decisions and optimize business performance.

Vertical and Horizontal Analysis

Vertical and horizontal analysis are techniques used in financial statement analysis to assess

• a company's performance,

• financial health, and

• to compare it with other companies or

• its historical performance.

Here's a detailed breakdown of their professional differences:

Definition:

???????? ????????

It involves expressing each item on a particular financial statement as a percentage of a base figure.

For example, each line item (like Cost of Goods Sold or Operating Expenses) can be presented as a percentage of total revenue on an income statement.

?????????? ????????

Evaluates changes in financial statement numbers across multiple periods.

It looks at the amount and percentage change from one period to the next.

???????:

???????? ????????

Provides insights into the structure of assets, liabilities, and equity OR the composition of revenues and expenses.

It helps in understanding the relative proportion of each component.

?????????? ????????

It helps to identify trends over time.

Aids in determining if certain financial metrics are improving or deteriorating over time.

???? ??? ??????????:

???????? ????????

Each item is compared to a single item within the same period. For instance, on a balance sheet, all accounts might be represented as a percentage of total assets.

?????????? ????????

Items are compared to the same item from a previous period.

Ratios every investor should know:

Liquidity and efficiency

▪️Quick: immediate short-term debt-paying ability

▪️Current ratio: short-term debt-paying ability

▪️Accounts receivable turnover: Efficiency of collection

▪️Inventory turnover: Efficiency of inventory management

▪️Days' sales uncollected: Liquidity of receivables

▪️Days' sales in Inventory: Liquidity of inventory

▪️Total asset turnover: Efficiency of assets in producing sales

Solvency

▪️Debt ratio: Creditor financing and leverage

▪️Equity ratio: Owner Financing

▪️Debt-to-equity ratio: Debt versus equity financing

▪️Times interest earned: Protection in meeting interest payments

Profitability

▪️Gross margin: Gross margin in each sales dollar

▪️Profit margin: Net income in each sales dollar

▪️Return on Assets: Overall profitability of assets

▪️Return on Equity: Profitability of owner investments

▪️Book value per common share: Liquidation at reported amounts

▪️Earnings per share: Net income per common share

Market Prospects

▪️ Price-earnings ratio: Market value relative to earnings

▪️ Dividend yield: Cash returns per common share

If you invest, you MUST understand ratio analysis.

Here are the top 6 ratios every investor should know:

Gross Margin

▶ Formula: Gross Profit / Sales

▶ Shows How Good the Company is at Turning Sales into Gross Profit

Price to Earnings

▶ Formula: Share Price / Earnings Per Share

▶ Shows the Company's Current Valuation

Debt to Equity

▶ Formula: Total Liabilities / Shareholder Equity

▶ Shows How the Company has Financed Itself

Return on Equity

▶ Formula: Net Income / Shareholder Equity

▶ Shows How Good the Company is at Generating Profits For Shareholders

Net Profit Margin

▶ Formula: Net Income / Sales

▶ Shows How Good the Company is at Turning Sales into Profits

Return on Invested Capital

▶ Formula: NOPAT / Invested Capital

▶ Shows the Capital Efficiency of the Business

The DuPont Analysis is a comprehensive framework that breaks down the various factors contributing to a company's Return on Equity (ROE). By dissecting ROE into its fundamental components, investors and analysts can gain deeper insights into a company's financial performance and pinpoint specific areas of strength and weakness. This detailed approach thoroughly examines profitability, asset utilization, and financial leverage, providing a clearer picture of what drives a company's financial success.

The model was developed by F. Donaldson Brown, an employee of the DuPont Corporation, in 1914. 

The attached graphic visually simplifies the DuPont analysis to highlight its key elements. The analysis begins with revenues, adjusted for costs and expenses to determine net profit. When divided by revenues, this net profit yields the profit rate, a crucial indicator of profitability. Additionally, the analysis considers current and fixed assets to calculate asset turnover, another vital component that measures how effectively a company utilizes its assets to generate sales.

The culmination of these factors—profit rate and asset turnover—combined with the equity multiplier, leads to the calculation of Return on Equity. By using this structured approach, the DuPont Analysis equips investors and analysts with the tools to delve into the underlying reasons behind the variations in ROE, whether it is due to the company's profitability, asset efficiency, or leverage. This powerful tool provides a nuanced understanding that goes beyond the surface-level financial metrics, enabling better investment decisions and strategic financial planning.

Financial Ratios Handbook

This compilation includes:

Profitability Ratio

A. Return

Return on Equity

Return on Assets

Return on Capital Employed

B. Margin

Gross Margin Ratio

Operating Profit Margin

Net Profit Margin

Leverage Ratio

Debt-to-Equity Ratio

Equity Ratio

Debt Ratio

Efficiency Ratio

Accounts Receivable Turnover Ratio

Accounts Receivable Days

Asset Turnover Ratio

Inventory Turnover Ratio

Inventory Turnover Days

Liquidity Ratio

A. Asset

Current Ratio

Quick Ratio

Cash Ratio

Defensive Interval Ratio

B. Earnings

Times Interest Earned Ratio

C. Cash Flow

Times Interest Earned (Cash Basis) Ratio

CAPEX to Operating Cash Ratio

Operating Cash Flow Ratio

Valuation Ratio

A. Price

Price-to-Earnings Ratio

B. Enterprise Value

EV/EBITDA Ratio

EV/EBIT Ratio

EV/Revenue Ratio

Envision a voyage into the intricate realm of financial statements, armed with a compass that hones your analytical prowess. Welcome to the 'Financial Statement Analysis Workbook' by Martin Fridson and Fernando Alvarez, a game-changing resource meticulously crafted to demystify the often perplexing domain of corporate finance.

This workbook presents a systematic, progressive method to master financial statement analysis. Through a series of thoughtfully designed exercises and tests, this guide reinforces theoretical understanding and immerses you in practical applications, rendering the intricate world of financial statements accessible and compelling.

Why is this workbook a must-read for students? Here are a few compelling reasons:

1. Practical Application: This workbook offers real-world scenarios and exercises beyond theoretical learning. This practical approach empowers you to understand the principles of financial statement analysis and confidently apply them in real-life situations.

2. Critical Thinking: The questions and exercises are designed to challenge your analytical skills, encouraging you to think critically and develop a skeptical eye toward financial reports. This is crucial in an era where financial misreporting and accounting gimmicks can mislead even the most experienced analysts.

3. Expert Insights: Authored by Martin Fridson and Fernando Alvarez, renowned experts in the field, the workbook distills decades of experience into practical advice and insightful commentary. Their expertise provides a solid foundation for understanding the nuances of financial analysis.

4. Comprehensive Coverage: The workbook spans a wide range of topics, from basic financial concepts to advanced analytical techniques. Whether you're a beginner or an advanced student, the content is designed to support your learning at every stage.

5. Interactive Learning: The format of the workbook promotes interactive learning. By actively engaging with the material, you retain information more effectively and develop a deeper understanding of the subject matter.

In today's dynamic financial landscape, accurately interpreting financial statements is a vital skill. This workbook equips you with the tools to navigate this landscape, enhancing your decision-making capabilities. Stay ahead of the curve with the Financial Statement Analysis Workbook.

Embark on this educational journey with the "Financial Statement Analysis Workbook" and transform your understanding of financial statements from a daunting challenge into a rewarding skill. This workbook is not just a study guide; it is your gateway to becoming a savvy financial analyst, ready to tackle the complexities of the financial world with confidence and precision. Dive in and discover the power of financial statement analysis today!

Revenue and Income are NOT the same things!

Costs and Expenses are NOT the same things!

Net Income and Free Cash Flow are NOT the same things.

Confused? Let me break it down for you:

Sales and revenue mean the same things.

Both are the money that comes in from customer payments.

They both refer to the "top line" of the income statement.

Orders and sales are NOT the same things.

Orders are when a customer places a request for the future delivery of a product or service.

Orders become sales when the product is actually shipped or the service is performed.

Costs are different from expenses.

Costs are money spent on making a product or delivering a service (hence "cost of goods sold")

Expenses are money spent on developing, selling, accounting for, and managing the product or service.

Costs and expenses both become expenditures when money is actually sent to the vendors to pay the bills.

Profits, earnings, and net income all mean the same thing.

They are the "bottom line" of the income statement.

They all represent what is left over after all of the costs & expenses are subtracted from the revenue.

Net income and free cash flow are NOT the same things!

Net income measures profitability on the income statement using accrual accounting.

Free cash flow measures cash flow available to shareholders on the cash flow statement using cash accounting.

Accrual accounting and cash accounting are not the same things.

Accrual accounting: revenue or expenses are recorded when they occur, not when payment is received or made

Cash accounting: transactions are recorded only when money goes in or out of an account.

This e-book, "Financial Distress: The Leading Cause of Corporate Turnaround," explores the critical financial challenges that often necessitate a turnaround.

Here are a couple of highlights from the e-book:

Declining Revenue

Persistent declines in sales or revenue can signal deeper issues within a company, from market competition to product obsolescence. Addressing the root cause is crucial to reversing the trend and stabilizing the business.

Increasing Debt

High debt levels can become unsustainable, especially if revenue is insufficient to cover interest and principal payments. A comprehensive financial review and restructuring may be necessary to manage debt levels and regain financial health.

Understanding and addressing financial distress is crucial for any business leader aiming to steer their company back to stability and growth.

Financial Analysis Course: How to Read a 10-K

I'll teach you how to analyze a

• Balance sheet

• Income Statement

• Cash Flow Statement

1️⃣ Balance sheet

A balance consists of the following elements:

• Current Assets

• LT Assets

• Current Liabilities

• LT Liabilities

• Shareholders Equity

It shows you what the company owns and owes.

This statement is based on a simple formula:

Assets = Liabilities + Equity

2️⃣ Income Statement

An income statement shows you the income and expenses of a company.

Revenue

- COGS

= Gross Profit

- Operating Expenses

= Operating Income

- Non-Operating Income/Expenses

= Pre-Tax Income

- Taxes

= Net Income

3️⃣ Cash Flow Statement

The Cash Flow Statement consists of 3 elements:

• Cash Flow from Operating Activities

• Cash Flow from Investing Activities

• Cash Flow from Financing Activities

It shows you the cash that enters and leaves a company.

Cash Flow from Operating Activities

Net Income

+ Non-Cash Changes

+/- Changes in Working Capital

= Cash Flow from Operations

Cash Flow from Investing Activities

- Capital Expenditures

- Acquisitions

+ Proceeds from the sale of investments

= Cash Flow from Investments

Cash Flow from Financing Activities

+/- Borrow/Repay Debt

+/- Issue/Repurchase of stocks

- Pay Dividends

= Cash Flow from Financing

The 10 Key Types of Equity Everyone Should Understand.

Master them to refine your capital structure,

To drive optimal financing strategies,

To seize growth opportunities,

To increase profitability.

1️⃣ Angel Investors

• Gain funding from wealthy individuals looking to invest in promising startups.

• Offer equity in exchange for capital in early-stage companies

• It also provides mentorship and industry connections

2️⃣ Venture Capital

• Secure funding from venture capital firms focusing on high-growth potential businesses

• Involves significant equity given away, often in multiple funding rounds

• Provides extensive resources and guidance, but requires sharing control

3️⃣ Seed Funding

• Obtain initial capital to start or expand the business, often from family, friends, or early investors.

• Typically, smaller amounts that help prove a concept before seeking more significant investments

• Often structured as convertible notes or equity stakes

4️⃣ Crowdfunding

• Raise small amounts of money from many people

• Can offer rewards, equity, or debt based on the type of crowdfunding

• Enables validation of business concepts through market interest

5️⃣ Private Equity

• Access capital from private equity firms

• Involves significant investment in exchange for substantial equity stakes

• Firms actively engage in managing and growing the business

6️⃣ Initial Public Offering (IPO)

• Offer shares to the public in a new stock issuance, providing capital for expansion

• Increases scrutiny as public companies must adhere to strict regulatory standards

7️⃣ Corporate Venture Capital

• Receive investment from a corporation looking to fund startups with strategic alignment

8️⃣ Convertible Debt

• Borrow money under the condition that the debt will convert into equity

• Protects investors with the security of debt instruments

• Useful for startups in early stages when valuation is challenging

9️⃣ Equity Crowdfunding

• Raise capital by selling small amounts of equity to a large number of investors via crowdfunding platforms

• Allows investors from various backgrounds to invest in startups they believe in

• Provides startups with a broad investor base and potential brand advocates

? Employee Stock Ownership Plans (ESOPs)

• Provide company shares to employees as part of compensation

• It helps align employee interests with those of shareholders

What would you add?

I am excited to share a guide on Debt Financing. I address the essential aspects of the topic to provide insight into how strategic borrowing can rocket a business to new heights. Jump in and enhance your financial strategy today.

What This Guide Will Cover

1️⃣ Overview of Debt Financing.

2️⃣ Purpose, Importance & Key players involved.

3️⃣ Types of Debt Financing.

3️⃣ Debt Term Length & Security.

4️⃣ Impact on Financial Statements.

5️⃣ Key Considerations Before Borrowing.

6️⃣ Leading Debt Financing Options Globally and their reason.

7️⃣ Pros and Cons of Debt Financing.

8️⃣ Summary.