A solid Conception of the three Statements.
Hi all, trying to nail my conception of the three statements. Please could you let me know if this seems correct and add anything you think is helpful/that I'm missing, (like certain perceptions that make understanding nuances easy).
Any extra twists or things to consider in relation to PE are appreciated too!
And any suggestions for learning next steps, like how £10 Depreciation flows through the statements, how new debt influences the three statements, and how PIK influences the three statements would be super helpful!
Income Statement
The income statement alone tells us how the company has performed over the/a given period, as Income and expenses are attributed to the period within which they are sold and not the period in which cash has been paid for them. [Accruals Basis]
Balance Sheet
The BS shows the exact position of A=L+E at the/a end of the period. [Accruals Basis]
The change in value of the BS from FYX(N) and FYX(N+1) tells us exactly how much has been made or lost through operations in the business over the/a period. (This change is what CFO tells us in the CFS, (Excluding Cash & equivalents)).
Cash Flow Statement
Derrived from the IS and deltaBS, the CFS shows the net cash inflows and outflows of a company in the/a given period. [Cash Basis]
Depreciation is added back to net income as its a non-cash expense.
The net cash flow change should equal the net chance in the various line items recorded on the BS, showing the true cash entry and exit of the business within the year.
@SaaSChimp would appreciate your advice on this Q. I've seen some solid answers from you re this sorta stuff on other threads.
@GBB_19NHS Would also appreciate hearing your perspective on this + a HF twist. Based off your solid comment on the how to think like an investor thread.
Bump. Anyone else see this?
Also interested in the specifics for thinking about the statements in relation to PE.
Make 3 simple statements in an Excel, plug some numbers, make the automatic references and calculations, and change numbers to see what's impacted. After you see what changes you can rationalize why because the hard part is not understanding that debt probably 1) affects cash, 2) creates a liability, 3) requires recurring interest payments, 4) interest payments => tax deductions, etc. it's more about remembering the "domino order", meaning how a change in one number creates a domino impacting other numbers across the statements
write the order down and you're done.
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