Financial Statements Basics: Part 1, with Jason Pereira | E083

Financial Planning For Canadian Business Owners

Jason Pereira reviews financial statements, how to read them properly, & what different terminologies mean. There are all kinds of rules about how depreciation impacts different types of business, and it’s also known as capital cost allowance in Canada.Today, Jason will discuss income statements, balance sheets, cash flow statements, and ratios.

Episode Highlights:

• 01.26: The balance sheet is a document that summarizes everything you own and owe and where the equity came from in the company.
• 01.52: Current assets are liquid assets meant to have a turnover period of less than a year. All assets on balance sheets start with the current assets.
• 03.20: Fixed assets are the things that are physical products or physical assets. We can have long-term investments in fixed assets things.
• 04.10: Equipment, vehicles, land, and buildings show up as the net number, which is the cost of acquisition minus the depreciation.
• 08.38: Retained earnings are not a number you can draw out of the business unless the assets exist.
• 09.42: Subtracting current assets from current liabilities gives you the net working capital. Net working capital is the amount of money you have invested in the business to keep it going.
• 10.53: The income statement tells you how profitable your business was for the year, and this is where all your sales transactions get summarized.
• 12:51: Subtracting the cost of goods sold or services rendered from the gross revenue gives you what is known as the net revenue or net after your direct expenses.
• 13.10 Fixed expenses are not directly tied to one thing, but it’s paying for the general apparatus of the build of the business to enable you to allow for incremental sales.
• 15.06 Interest is a funding cost based on your capital allocation strategy, and taxes are solely based on your net profit.
• 17.23: Working capital is current assets minus current liabilities, and that is an investment in a firm because you have to have that money in the company. Reducing your need for networking capital increases the amount you can pull out of the business or reinvest in the business.

3 Key Points:

1. Capitalizing on the purchase will reduce the amount that is going to get deducted, it will be reduced to a set amount per year based on one of a couple of schedules.
2. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) allows you to compare business operations in terms of essentially what their top line is and how much they can convert to their bottom line.
3. Reducing your need for networking capital, increases the amount you can pull out of the business or reinvest in the business.

Tweetable Quotes:-

• A cash flow is like water. It’s the life of the business, too much cash flow will make you drown, and too little will make you die first.
• Anything that gets spent on the business directly not attributable to unit sales is a general fixed overhead expense.
• Just because you spend the cash doesn’t mean it’s an expense for tax purposes and is a good thing or bad thing that’s debatable.

Resources Mentioned

• Facebook – Jason Pereira’s Facebook
• LinkedIn – Jason Pereira’s LinkedIn

Transcript

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