DSDillon Marketing Important Financial Concepts

Unlocking the mysteries of financial concepts for entrepreneurs

Why Having An Understanding Of Financial Concepts Is Important To Entrepreneurs

Financial jargon is often used in professional conversations, but it is not always easy to understand. This section will focus on some of the most important financial terms that entrepreneurs should know.

Profit Margin

Profit margin is defined as the percentage of profit earned by a company after subtracting all expenses from the gross income. It can be calculated by dividing gross profit to total revenue and multiplying by 100%.

Net Worth

Net worth refers to a person’s or company’s assets minus their liabilities.

Assets

Assets are the things that a company owns. They can be tangible or intangible. Tangible assets are physical objects that the company owns, such as machinery, buildings, and vehicles. Intangible assets are non-physical things like patents, intellectual property, trademarks, copyrights and goodwill.

Types of assets:-
  • Tangible assets: machinery, buildings, vehicles
  • Intangible assets: patents, intellectual property (IP), trademarks (TM), copyrights (C), goodwill

A company’s intangible assets are its patents, copyrights, trademarks, and goodwill.

Patents give the inventor an exclusive right to make or sell the invention for a limited period of time.

Copyrights protect the author’s work in various media.

Trademarks identify goods and services.

Goodwill is the difference between what a company will pay for something and what it sells it for.

Operating assets are the property of a company that is used in the production of goods or services.This includes machinery and equipment, buildings, land, and other tangible assets.When a company decides to close its doors, it may decide to liquidate its assets. In order to do so, an asset manager is usually hired by the company’s board of directors or by the entity that filed for bankruptcy. They look at all of the company’s assets and evaluate what should be sold, what should be retained and what should be abandoned.

Non operating assets are assets that are not used to generate income for the company. Non operating assets can be considered as investments for the company. They do not generate any income, but they help the company to grow in other ways. A non operating asset is an asset that does not produce revenue but is still valuable to a company. Non-operating assets are usually long-term investments that do not produce revenue but may increase the value of a company by providing growth opportunities or diversification, such as property and equipment.

A liability is something that’s going to cost you money. It can be an ongoing expense, or a one-time cost. The bad news is that if you want to grow your business, you’re going to need some liabilities. The good news is that there are ways to minimize the negative impact of these liabilities on your company’s bottom line.

The liabilities of a company are the obligations that it has to pay in the future. These can be in the form of bonds, stocks, or even loans. They are usually defined as long-term liabilities because they extend over several years.

There are two types of liabilities: current and non-current.
  • Current liabilities include debts that need to be paid within one year or less and non-non-current liabilities include debts that need to be paid after one year or more. Current Liabilities: A company’s current assets minus its current liabilities equals its working capital. A company is able to use this working capital to invest in new projects, repay debt and make necessary payments for day-to-day operations.

One of the reasons companies should be mindful of their cash balance is because it is an indicator of a company’s liquidity. The more liquid a company, the less likely they are to face solvency problems which can lead to bankruptcy.

  • Non Current Liabilities are the liabilities that do not need to be paid in the current year. They are usually long term and have a maturity period of more than one year.The reason why companies care about Non Current Liabilities is that they can help predict the company’s future cash flow.Non current liabilities usually take the form of loans, bonds, and leases.
Balance Sheet

A balance sheet is a statement that shows the financial position of a company at a point in time. It will show assets, liabilities, and equity.

A balance sheet is often referred to as an “asset” or “liability” statement because it shows what assets and liabilities the company has at that moment in time.

A company’s assets are things like cash, equipment, inventory, and buildings.

Liabilities are things like loans and unpaid bills.

Expenses

Expenses are the money spent by a company to produce goods or provide services.

Expenses can be classified into two types: direct and indirect.
  • Direct expenses are the costs that can be directly associated with the production of goods or services.
  • Indirect expenses are costs that cannot be directly linked to production, but still contribute to it (for example, rent).
Accounts Receivables

Accounts receivables are the funds that a company has received from their customers, but not yet collected.

Accounts receivables are an important financial metric for any company. This is because it helps them to figure out how much money they have available to invest in new projects and its also an indicator of how long their customers take to pay them back.

Cash Flow

Cash flow is the amount of cash and cash equivalents that a company has available at any given time.

Income Statement

The income statement is a financial statement that summarizes the revenues, expenses, gains, and losses of a business over a specified period of time.

The balance sheet is one of three fundamental financial statements in accounting. It reports on the assets, liabilities, and equity for an organization at a specific point in time.

Cash flow can be calculated by subtracting all expenses from all sources of revenue for a particular period. This helps predict whether or not an organization will have enough money to cover their expenses over the next year.

The balance sheet also helps predict whether or not an organization will have enough money to cover their expenses over the next year because it tells us how much money they currently have available for use now.

A cash flow statement is a financial statement that summarizes the cash that has come into and gone out of a business, or that summarizes the changes in cash holdings. It is one of the three primary financial statements.

The other two financial statements are the balance sheet and income statement.

The balance sheet shows what a company owns (assets) and owes (liabilities), while the income statement shows how much profit a company has made during a given period of time. The cash flow statement can be thought of as an update on these two statements, showing how much money has been coming in and out of the business over time.

Profit and loss is a measure of the difference between revenue and expenses.A company’s profit is the amount of money that the company makes after subtracting all of its expenses from its total revenues.

A company’s profit margin is the percentage by which profits exceed revenues. A company’s net income is calculated by subtracting all expenses from revenues, including taxes, depreciation, interest, and other costs. Net income can be used to calculate a company’s earnings per share (EPS) or return on equity (ROE).

An income statement is a financial report that summarizes an organization’s revenue and expenses for a certain period of time.It can be used to measure the profitability of a company, which can help investors make decisions about whether to invest in the company or not. The income statement is also called as the profit and loss statement.

Net profit is the money left over from a company’s revenue after all expenses have been subtracted. This includes any interest, taxes, and depreciation on assets that were used to generate the revenue. Net profit can also be calculated by subtracting total costs from total revenues.

Entrepreneurs should have a good understanding of the financial concepts that are important to the success of their business. It is important for entrepreneurs to know how to read financial statements and how they affect their business.

The entrepreneur needs to understand what is going on with the cash flow, what is happening with the balance sheet, and what is happening with the income statement.It’s crucial for them to know how much money they have coming in and how much money they have going out since this will affect their business.

The entrepreneur should be able to make a chart of income and expenses so that they can see where their money is being utilized.

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