BASIC GEEK
FINANCIAL STATEMENTS AND
DECISION MAKING
SEGMENT TWO
Table of Contents
Movie
BG2-Twelve
BG2-Thirteen
BG2-Fourteen
Pages
26
Timing
0:00 – 1:32
27
1:32 – 1:57
28
1:57 – 2:45
28
2:45 – 4:36
4:36 – 6:20
6:20 – 7:58
28
7:58 – 8:33
8:33 – 9:25
9:25 – 9:40
9:40 – 10:09
10:09 – 10:33
10:33 – 11:28
11:28 – 12:19
29
BG2-Fifteen
30
12:19 – 12:55
12:55 – 14:09
BG2-Sixteen
31
14:09 – 15:30
15:30 – 15:59
15:59 – 17:15
17:15 – 17:45
17:45 – 18:20
18:20 – 18: 35
18:35 – 19:18
19:18 – 22:40
22:40 – 24:10
Topic
Introduction & Outcomes from
Segment Two
Review of DyMax and Segment
One
Balance Sheet Review
 The Basic Accounting
Equation
 The Relationship – Trust
 The Snapshot
 Current Assets
1. Cash
2. Accounts receivable
3. Inventory
 Current Liabilities
 Why do Current Assets
and Current Liabilities
matter?
 Estimates & Assumptions
 Receivables & Risk
 Inventory & Risk
 Fixed Assets & Risk
1. (Book Value vs.
Market Value)
 Liabilities - Vendors &
Lenders
Notes Page
Income Statement Review
 Income Statement
Graphic
 Basic Structure of
Income Statement
 Variable & Fixed costs
 Gross Profit
 SG&A
 Income Before Taxes
(Net Income)
 The Roadmap
 Accrual Method &
Matching Principle
1. Cash Based vs.
Accrual
2. Accrual Method
 Separating COGS & Exp.
BG2Seventeen
32
24:10 – 25:39
25:39 – 26:35
26:35 – 27:24
27:24 – 28:01
28:01 – 29:05
BG2Eighteen
33
29:05 – 30:30
35
34:06 – 35:50
36
37
35:50 – 39:10
39:10 – 40:37
38
39
40
40:37 – 42:29
42:29 – 44:21
44:21 – 45:58
Hand Out
45:58 – 46:39
41 - 42
46:39 – 50:45
My 5 Partners
34
32:50 – 33:21
33:21 – 34:06
BG2-Twenty
BG2-Twenty
One
BG2-Twenty
Two

Accounts Receivable &
Cash Flow
 Inventory & Cash Flow
 Accounts Payable &
Cash Flow
The Five Crucial Ratios
 The 2 cash management
ratios
1. Current Ratio
2. DSO
 The 3 Margin (Profit)
management ratios
1. COGS / Sales
2. SG&A / Sales
3. Net Profit / Sales
 Table of Numbers for
Ratio exercises
The 2 Cash Management
Ratios
 Current Ratio
 Days Sales Outstanding
(DSO)
The 3 Margin Management
Ratios
 COGS as a % of Sales
 SG&A as a % of Sales
 Net Margin as a % of
Sales
Automated Analyzer
30:30 – 31:46
31:46 – 32:50
BG2Nineteen
Cash Statement
 Cash Statement as a
record of movement
 3 Types of Cash Flow –
Operating Cash Flow
 Investing Cash Flow
 Financing Cash Flow
 The Road Map/Movie
2014 Copyright ©Geeks of Finance – All rights reserved
After successfully completing Segment 2,
you will be able to:
 Distinguish the structure of and relationships between
the 3 primary financial statements
 Name five crucial ratios that drive business
performance
 Understand and use cash management ratios
 Understand and use margin management ratios
 Begin to communicate more effectively with the 5
partners in your business: lenders, vendors, customers,
management/employees, and financial support staff
2014 Copyright ©Geeks of Finance – All rights reserved
26
Remember, in our first session, we created a
simplified version of a company that purchases and
re-sells products.
The metaphorical company was called DyMax
Distributors.
Let’s review now what we learned about the three
main financial statements.
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27
Balance Sheet Review
Assets
Liabilities
Cash
$8,000
Accts. Payable
$22,000
Accts. Receivable
$5,000
Notes Payable
$10,000
Inventory
$21,400
Fixed Assets
$3,000
Owner’s Equity
Shareholder’s Cap.
Total Assets
$37,400
$5,000
Earnings YTD
$400
Total Liab. & OE
$37,400
•
•
•
•
Why is this financial statement called a Balance Sheet?
What two things does the Balance Sheet connect?
Why is a Balance Sheet called a snapshot?
What are Current Assets and why are they called Current
Assets?
• What are Current Liabilities and why are they called
Current Liabilities?
• Why do Current Assets and Current Liabilities matter so
much to a company?
• What do we mean that the Balance Sheet is full of
estimates and assumptions?
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28
Balance Sheet Review - Notes:
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29
Income Statement Review
• What is the basic physical structure of the Income
Statement (from top to bottom)?
• Why is the Income Statement called a roadmap – or a
movie?
• What is the Accrual and the “matching principle” of
accounting?
• Why do we have two major cost categories on the
Income Statement?
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30
Income Statement Review - Notes:
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31
Cash Statement Review
• What is the Cash Statement a record of?
• What are the three types of cash flow and what do
they represent?
• Why is the Cash Statement called a road map or
movie?
• How are Inventory, Accounts Payable and Accounts
Receivable involved in Cash Flow
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32
Cash Statement Review - Notes:
2014 Copyright ©Geeks of Finance – All rights reserved
33
To begin applying what you learned in segment one,
and to prepare you for segments three, four, and five,
we introduce you to:
The Five Crucial Financial Ratios:
Cash Management Ratios:
1)
2)
Margin Management Ratios:
1)
2)
3)
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34
The table below illustrates the numbers that you will
use to calculate the 5 crucial ratios:
Current Assets
Current Liabilities
Receivables
Sales
COGS
SG&A
Net Profit
$750
$250
$250
$1,000
$700
$200
$100
On which financial statement will you find the top
three numbers?
On which financial statement will you find the
bottom four numbers?
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35
Current Ratio
Formula = Current Assets/Current Liabilities
Current Assets = $750
Current Liabilities = $250
What is the Current Ratio?
Is this a cash management or margin management
ratio?
 Hint: in your mind, always put decimal
ratios over “1”, i.e., 3/1
 With all decimal ratios, the ratio number you
see, e.g., 3, is the numerator or top number
of the ratio (in this case, Current Assets)
 The bottom number “1” is implied and
represents the denominator (in this case,
Current Liabilities)
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Days Sales Outstanding
Formula = Receivables/Sales X Days in Period (365)
Receivables = $250
Sales = $1000
What is the DSO?
Which way do we want that number going?
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COGS as a % of Sales
Formula = Cost of Goods Sold/Sales
COGS = $700
Sales = $1000
What are the COGS as a % of Sales?
Which way do we want that number going?
Note*
 To convert a decimal to a percentage, all
you have to do is multiply it by 100.
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Ratio = SG&A as a % of Sales
Formula = SG&A/Sales
Selling, General, and Administrative = $200
Sales = $1000
What is our SG&A as a % of Sales?
Which way do we want that number going?
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Ratio = Net Margin
Formula = Net Profit/Sales
Net Profit = $100
Sales = $1000
What is our Net Margin?
Which way do we want that number going?
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40
Notes on Your 5 Partners:
Lenders:
Vendors:
Customers:
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Managers/Employees:
Financial Support Staff:
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