FINANCE FOR
NON-FINANCIAL STAFF
DEFINITIONS
BALANCE SHEET
A financial statement that provides a snapshot of a
company's financial position at a specific point in
time. It presents a summary of a company's assets,
liabilities, and shareholders' equity. The balance
sheet follows the fundamental accounting equation:
Assets = Liabilities + Shareholders' Equity.
PROFIT AND LOSS
A financial statement that summarizes a company's
revenues, expenses, gains, and losses over a specific
period, usually a fiscal quarter or year. It shows the
company's net income or net loss by subtracting
expenses and losses from revenues and gains.
CASH FLOWS
Cash flow refers to the movement of money into and
out of a business over a specific period. Positive cash
flow means more money is coming in than going out,
while negative cash flow indicates more money is
being spent than earned.
Balance sheet
2022
2023
Change
Intangible assets
Tangible assets
Other investments and assets
Non-current assets
100
300
100
500
200
400
150
750
100
100
50
250
Inventories
Account Receivable
Other current assets
Cash
Current assets
200
450
100
175
925
300
500
150
1,290
2,240
100
50
50
1,115
1,315
$
$
Total assets
1,425
2,990
Equity
500
1,790
1,565
0
1,290
Long term financial debt
Other long term liabilities
Long term fin. liabilities
250
250
500
250
250
500
0
0
0
Trade payables
Financial liabilities
Other liabilities
Current liabilities
100
200
125
425
350
200
150
700
250
0
25
275
1,425
2,990
1,565
Total Equity and liabilities
3
PROFITABILITY
Profitability refers to the ability of a business or
investment to generate profits or financial gains. It
measures the extent to which a company's revenues
exceed its expenses and costs, resulting in a positive
net income.
Revenue
COGS variable
COGS fixed
COGS
2023
Change
10,000
6,000
200
6,200
11,000
6,600
200
6,800
1,000
600
0
600
3,800
4,200
Gross profit
1,000
1,000
2,000
1,100
1,100
2,200
50
120
10
10
190
50
90
10
10
160
400
0
100
100
200
0
0
(30)
0
0
(30)
EBITDA / Operating profit
Depreciation and amortization
1,610
100
1,840
100
230
0
EBIT
1,510
1,740
230
Interest and financial expenses
Financial income
EBT
Tax
Net income
50
10
1,470
280
1,190
50
10
1,700
310
1,390
0
0
230
30
200
Overhead - variable
Overhead - fixed
Overhead costs
Gains from sale of non-current assets
Losses from sale of non-current assets
Impairment of receivables
Impairment of inventories
Other
Cash flow statement
2022
2023
1,190
1,390
Depreciation and amortization
Impairment of receivables
Impairment of inventories
Losses (gains) from sale of non-current assets,
net
100
10
10
100
10
10
70
40
(Incerease) or decrease of other current assets
(100)
(60)
(Incerease) or decrease in account receivables
(Incerease) or decrease in inventories
Increase (decrease) in trade payables
Increase (decrease) in other liabilities
CF from operating activities
(250)
(120)
(120)
(100)
690
(60)
(100)
250
25
1,605
Sales of non-current assets
Purchase of non-current assets
CF from investing activities
200
650
(450)
125
515
(390)
0
(70)
(45)
(115)
125
50
175
100
0
(200)
(100)
1,115
175
1,290
$
Net income
Increase of share capital
Increase (decrease) in financial liabilities
Dividends paid
CF from financing activities
Total cash flow
Cash at the beginning of period
Cash at the end of period
PROFIT AND LOSS
BALANCE SHEET
FIXED ASSETS
EQUITY
REVENUES
RETAINED
EARNING
EXPENSES
CURRENT ASSETS
LONG-TERM
LIABILITIES
CASH
SHORT-TERM
LIABILITIES
GROSS MARGIN
BY NEVENA MISKOVIC
2022
NET PROFIT
+ DEPRECIATION
EBITDA stands for "Earnings Before Interest, Taxes,
Depreciation, and Amortization." It is a financial
metric that measures a company's operating
performance and profitability by excluding certain
non-operating expenses and non-cash items. EBITDA
provides a clearer picture of a company's core
operating profitability and cash flow generation.
CURRENT ASSETS
Assets that is expected to be converted in cash in
period less than 1 year, such as account receivable,
inventories.
EQUITY
Equity is calculated by subtracting a company's total
liabilities from its total assets
LIABILITIES
LIQUIDITY
Ability of company, to convert assets into cash
quickly and without significant loss in value and pay
its current liabilities in time
KPIs
Key Performance Indicators, are quantifiable metrics
used to measure and evaluate the performance and
progress of an organization or specific activities
within it. KPIs are used to assess how effectively an
organization is achieving its goals and objectives
CAPEX
Funds invested by a business to acquire, upgrade, or
maintain long-term assets that are expected to
generate benefits or revenue over an extended
period.
OPEX
Ongoing expenses that a business incurs to operate
and maintain its day-to-day activities. It represents
the costs necessary to keep a business functioning on
a regular basis, excluding any investments or capital
expenditures
ROI
It is a financial metric used to measure the
profitability and efficiency of an investment. ROI is
calculated by dividing the net profit from an
investment by the initial cost of the investment and
expressing it as a percentage.
QUICK RATIO
(Current assets – inventoris) / current liabilities
CASH BALANCE
NET PROFIT
DSO
Average Account receivable / Revenues * 365
DIO
Days Inventory Outstanding (DIO) measures the
average number of days it takes for a company to
sell its inventory.
DPO
ACCOUNTING
CONTROLING
TREASURY
Policy and audit
Risk
Financial
accounitng,
bookkeeping, tax,
preparation FS
Financial planning,
analysis, budget,
resource planning
Financial
operations, cash
management,
collection
Preparaton of
procedures,
internal audit
conducting
Financial risk
management
VERTICAL FINANCIAL ANALYSIS
Vertical analysis
2024
2025
2026
2027
CASH BASIS
Cash basis accounting recognizes
revenues and expenses when cash is
received or paid. Revenue is recorded
when cash is received from customers,
and expenses are recorded when cash is
paid to suppliers or vendors.
Revenues
COGS variable
COGS fixed
COGS
100%
60%
2%
62%
100%
60%
2%
62%
100%
60%
2%
62%
100%
60%
2%
62%
100%
60%
2%
62%
Gross profit
38%
38%
38%
38%
38%
Overhead - variable
Overhead - fixed
Overhead costs
9%
10%
19%
12%
10%
22%
12%
10%
22%
12%
10%
22%
12%
10%
22%
DEBIT
Debits are recorded on the left side of
an account.
vs
vs
ACCURAL BASIS
Recognizes revenues and expenses when they
are earned or incurred, regardless of when
cash is received or paid. Under this method,
revenue is recorded when goods or services
are delivered or completed, and expenses are
recognized when they are incurred,
irrespective of cash flow
CREDIT
Credits are recorded on the right side of an
account.
EBITDA / Operating profit
18%
15%
14%
15%
16%
Depreciation and amortization
Interest and financial expenses
Financial income
EBT
2%
0%
0%
16%
3%
0%
0%
12%
3%
0%
0%
11%
3%
0%
0%
12%
3%
0%
0%
13%
They increase asset accounts and
decrease liability and equity accounts.
They increase liability and equity accounts and
decrease asset accounts.
2%
2%
2%
2%
2%
Debits are used to record increases in
expenses and losses.
Credits are used to record increases in
revenue, income, and gains.
14%
10%
9%
10%
11%
In general, debits represent the flow of
value into an account.
In general, credits represent the flow of value
out of an account.
Net income
DISCOUNTING
EFFICIENCY
Discounting is process of determining the present value
of future cash flows or a future sum of money by
adjusting it for the time value of money. The time value
of money recognizes that a dollar received in the future is
worth less than a dollar received today due to factors
such as inflation, opportunity cost, and risk.
Efficiency refers to the ability to
accomplish a task, process, or activity in
the most optimal and resource-efficient
manner. It focuses on minimizing waste,
reducing costs, and maximizing output
or results while utilizing the least
amount of resources, such as time,
money, or materials
Discounted Cash Flows
2024
2025
2026
2027
2028
CASH FLOW
Net income
1,055
1,086
1,088
1,167
1,159
235
235
275
275
275
(106)
(570)
613
1.1342
(7)
0
1,314
1.2864
(8)
(200)
1,155
1.4590
(8)
0
1,434
1.6548
(9)
0
1,424
1.8768
Cash flow is concerned with the
movement of actual cash in and out of
the company. ash flow provides a more
direct measure of a company's ability to
generate and manage cash
541
1,021
792
866
759
Depreciation and amortization
Net Working capital adjustments
CAPEX adjustments
Free Cash Flow
Discount factor
DCF
EBITDA Multiple valuation
EBITA non-adjusted
1,629
Non operating items
One-time items
Asset impairments (reversal)
GAAP adjustments
IC fair prices adjustment
Adjustments
EBITDA adjusted
Valuation
Cash on hand
Interest bearing debt
Net financial position
Valuation adjusted
NEVENA MISKOVIC
75
20
15
(30)
25
140
1,769
11,499
1,376
450
926
12,425
|
CAPEX
Capital expenditures in Balance sheet
involve significant investments in assets
that have a long-term impact on the
business
SHORT TERM
vs
EBIT
EBIT represents the operating profitability
before considering interest and taxes
OPEX
Recognized in P&L and incurred for day-today operations. Those are regular operating
business expenses such as payroll, marketing
vs
LONG TERM
Due in more than 1 year
BALANCE SHEET
Helps stakeholders assess the financial
health, liquidity, and solvency of a
company.
CCC
The Cash Conversion Cycle (CCC) represents the
time it takes for a company to convert its
investments in inventory and other resources into
cash flow from sales.
DIO+DSO-DPO
ASSET TURNOVER
Asset turnover measures a company's efficiency in
utilizing its assets to generate revenue.
Revnue / Assets
EBITDA COVERAGE
EBITDA to interest coverage ratio evaluates a
company's ability to cover its interest expenses with
its earnings before interest, taxes, depreciation, and
amortization
EBITDA / Interest expenses
EBITDA MARGIN
EBITDA margin represents the percentage of
revenue that remains as after deducting all
operating expenses, indicating the company's
operating profitability.
EBITDA / Revenues
NET PROFIT RATE
Net profit rate (also known as net profit margin or
net profitability) measures the percentage of
revenue that remains as net profit after deducting
all expenses, including taxes and interest, reflecting
the company's overall profitability.
Net income / Revenues
vs
Due less than 1 year
FOLLOW ON LINKEDIN
EFFECTIVENES
Relates to the degree of achieving or fulfilling
a desired objective, goal, or outcome. It
emphasizes the extent to which the desired
results or intended targets are met.
Effectiveness is about doing the right things
and ensuring that the desired outcome or
purpose is achieved successfully
vs
Days Payable Outstanding (DPO) determines the
average number of days it takes for a company to
pay its suppliers.
Average trade payables / COGS *365
TERMS COMPARISON
2028
$
Tax
Financial obligations or debts that a company owes
to external parties. They represent the company's
legal or financial responsibilities that need to be
fulfilled in the future
Current assets / current liabiiltes
CASH FLOW
TAX
OPERATING PROFIT
What company owns like property, plants,
equipment, intellectual property, shares in associate
companies, etc.
The current ratio measures a company's ability to
cover its short-term liabilities with its short-term
assets
Average inventories / COGS * 365
The difference between total revenues and total
costs
FIXED ASSETS
Measures a company's profitability and efficiency in
generating profits from the shareholders' equity
The quick ratio (also known as the acid-test ratio)
evaluates a company's ability to meet short-term
obligations using its most liquid assets.
CFO
NET PROFIT
Revenues are defined as the inflows of
economic benefits arising from the ordinary
Activities of an entity when those inflows
result in an increase in equity, other than
increases relating to contributions from equity
participants
ROE (PROFITABILITY)
+/- CHANGE IN ASSETS
FINANCE DEPARTMENT ORGANIZATION
EBITDA
REVENUES
Financial ratios are quantitative metrics used to
analyze and assess the financial performance,
health, and stability of a company. These ratios are
derived from the financial statements and provide
insights into various aspects of a company's
operations, profitability, efficiency, liquidity, and
solvency. Financial ratios are widely used by
investors, analysts, and stakeholders to evaluate the
financial position and make informed decisions.
Days Sales Outstanding (DSO) calculates the
average number of days it takes for a company to
collect payment from its customers for sales made
on credit.
A financial metric that represents the percentage of
revenue remaining after deducting the cost of goods
sold (COGS). It measures how efficiently a company
produces its products or services and is a key
indicator of its profitability at the most basic level.
Financial metric that represents the profit generated
from a company's core operations before deducting
interest and taxes.
DEFINITION
CURRENT RATIO
CASH FLOWS
PROFIT BEFORE TAX
FINANCIAL RATIOS
Net income / Revenues
BASIC FINANCIAL STATEMENTS AND THEIR RELATION
NET MARGIN
Financial ratio that indicates the percentage of
revenue that remains as net profit after deducting all
expenses, including COGS, operating expenses,
interest, taxes, and other non-operating costs. It
measures the profitability of a company's operations
and reflects how effectively it manages its costs and
generates profit.
Profit and Loss Account
vs
PROFIT & LOSS
Provides insights into a company's
operational performance, profitability, and
ability to generate consistent earnings.
EQUITY RATIO
Equity ratio compares the company's total equity to
its total assets, expressing the proportion of assets
funded by equity and indicating the company's
financial leverage and stability.
Equity / total liabilities
DEBT RATIO
Debt ratio assesses the proportion of a company's
total debt relative to its total assets, providing
insight into the company's financial risk and
dependency on debt financing.
Total liabilities / Assets
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