Long Term Mindset

Accounts Payable vs Accounts Receivable Post by: Josh Aharonoff, CPA Stay connected with him! 2 BIG areas of Finance & Accounting… and many organizations have entire departments dedicated to these 2 functions. They are the yin and yang of the money you OWE and the money you’re OWED Each have their own quirks, and ways to analyze Let’s get into it ➡️ What do they mean? Accounts Payable → Money you owe to suppliers for goods or services purchased Accounts Receivable → Money customers owe you for sales generated but not yet paid ➡️ Where do they show up on your financial statements? They are both part of your working capital, and appear on your balance sheet Accounts Payable → Current Liabilities Accounts Receivable → Current Assets The movements in these accounts get shown on your statement of cash flows in your Cash from Operating Activities ➡️ What are the journal entries? Accounts payable → Goes up with a credit, and down with a debit Accounts receivable → Goes up with a debit, down with a credit ➡️ Why are they important? These 2 accounts can cause wild swings in your cash flows Accounts Payable → the more favorable your credit terms with suppliers, the stronger your cash position Accounts Receivable → the quicker you collect your cash, the less bad debt, and the more favorable your cash position ➡️ What are some formulas around these? 1️⃣ Accounts Payable Formulas: Accounts Payable Turnover → this measures how many times a company pays off its accounts payable balance in a specific period Formula = Purchases on credit / avg accounts Payable Days Payable Outstanding (DPO) → Represents the average number of days it takes a company to pay its suppliers Formula = Accounts Payable / Purchases on Credit * number of days 2️⃣ Accounts Receivable Formulas: Accounts Receivable Turnover → this measures how many times a company can convert its accounts receivable balance into cash in a given period Formula = Net Credit Sales / Avg AR balance Days Sales Outstanding (DSO) → this measures how long it takes on average to collect again your receivables Formula = Accounts Receivable / Net Credit Sales * Number of Days Bad Debt Expense ratio → This show you how much you can expect to have in bad debt for each dollar in AR Formula = Bad debt expense / Total Credit Sales That’s my take on AP & AR Got anything to add? Let us know by joining in on the discussion in the comments below Follow Long Term Mindset for more content like this. *** P.S. Want to master the basics of accounting (for free)? I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English. Check it out here (It's free) → https://lnkd.in/eKbRV7g6 If you found this post useful, please repost ♻️ to share with your audience

How to read a Cash Flow Statement: The Cash Flow Statement shows a company's profitability at multiple levels over a period of time using CASH ACCOUNTING. 👉 PURPOSE: Track Cash Movement 🔀 SIMILAR TO: Your Checking Account ⏰ TIME: Period of Time 🔢 ACCOUNTING: Cash ⏩ STARTS WITH: Net Income 3 Main sections: 💰 CASH FROM OPERATING ACTIVITIES All of the cash flows from activities related to operating the business 💰 CASH FROM INVESTING ACTIVITIES The cash movements from long-term assets 💰 CASH FROM FINANCING ACTIVITIES The cash from all equity investments and debt from the company 💰 CASH FROM OPERATING ACTIVITIES Net Income (From the Income Statement) ➕ Non-Cash Changes ➕ / ➖ Changes in Working Capital = Cash Flow from Operating Activities 💰 CASH FROM INVESTING ACTIVITIES ➖ Capital Expenditures ➖ Acquisitions ➕ Proceeds from the Sale of Investments = Cash Flow from Investing Activities 💰 CASH FROM FINANCING ACTIVITIES ➕ / ➖ Borrowing / Repaying Debt ➕ / ➖ Issuing / Repurchasing Stocks ➖ Dividends Paid to Shareholders = Cash Flow from Financing Activities 🔼 Total Change in Cash During Period ➕ Starting Cash Balance ➡ Ending Cash Balance (Sent to Balance Sheet) 💸 FREE CASH FLOW: Cash Flow From Operation - Capital Expenditures = Free Cash Flow Was anything confusing? Please let me know below. I'll be happy to explain further. *** ➕ Follow Long Term Mindset for more content like this. Want to master the basics of accounting (for free)? Enroll in our email-based course: Financial Statements School Get started here (It's free) → https://lnkd.in/eKbRV7g6 If this post was helpful, repost it ♻️ to share with your audience.

📍Are you interested in a career as Financial Analyst but not sure how to start preparing for it? Full credit post for Jeetain Kumar, FMVA®  - Follow him! 👉Financial analyst skills can include a combination of hard skills and soft skills. 👉Financial analysts need financial statements analysis, advanced excel and quantitative skills. 👉 Addition to problem-solving, communication, analytical and decision making skills. TECHNICAL SKILLS ⬇️ Financial Analysis, Financial Modelling, Market Research, Quantitative Analysis and Valuation Techniques. SOFT SKILLS ⬇️ Critical Thinking, Attention to Detail, Problem Solving, Decision Making and Presentation Skills. WHO ARE EMPLOYERS OF FINANCIAL ANALYST ⬇️ 1. Investment Banks - Goldman Sachs, JP Morgan Chase and Morgan Stanley 2. Insurance Companies - Aditya Birla, Bajaj Allianz & HDFC life Insurance 3. Hedge Funds - Citadel, Bridgewater Associates and D.E Shaw 4. Financial Consulting - Deloitte, KPMG, Ernst & Young (EY) and PwC 5. Asset Management - Blackrock, Vanguard and Fidelity Investments CAREER PATH ⬇️ Start as an Intern or Analyst Progress to Senior Analyst Aim for VP in Boutique Firm Explore leadership Positions like Vice President, Director or Partner TIPS TO STAND OUT ⬇️ Stay Informed: Read Newspaper Network with Industry Professional Continuously Update Skills Gain experience with Relevant Jobs Have a Track record: Value Investing Follow Long Term Mindset for more content like this. *** P.S. Want to master the basics of accounting (for free)? I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English. Check it out here (It's free) → https://lnkd.in/eKbRV7g6 If you found this post useful, please repost ♻️ to share with your audience

How to analyze an Income Statement: Ask these 11 questions: 1: Does revenue consistently grow? →Analyzing revenue trends over time can help assess the company's growth and stability. 2: What is the gross margin? →Gross margin, which is gross profit divided by revenue, indicates how efficiently the company manages its production costs. 3: Is the gross margin stable? Expanding? Contracting? Why? →Changes in the gross margin trend provide insights into the company's pricing power with consumers and cost control measures with suppliers. 4: Are there research + development expenses? →Research & Development expenses indicate the company's has to continuously innovate to drive future growth. 5: Are there selling + marketing expenses? →Big selling and marketing expenses indicate the company has to spend heavily to promote its products or services. 6: What are the company's biggest operating expenses? →Identifying the biggest expense, such as labor or cost of goods sold, can pinpoint the areas where cost management is critical. 7: What is the company's operating margin? →Operating margin, which is operating profit divided by revenue, measures how efficient a company is at converting revenue into profits. 8: Does the company have any non-operating expenses? →Looking for non-operating expenses like interest payments or one-time charges is essential for understanding the impact of financial activities outside the company's core operations. 9: What is the company's net profit margin? →Net profit margin, which is net profit divided by revenue, indicates the overall profitability of the company after all expenses. 10: Is the company profitable on a Non-GAAP basis? →Looking at non-GAAP profitability enables you tp understand if the company's profit picture differs when certain accounting adjustments are made. 11: Is the company profitable on a GAAP basis? →Assessing profitability on a Generally Accepted Accounting Principles (GAAP) basis provides insight into whether the company complies with standard accounting rules and is profitable within that framework. *** ➕ Follow Long Term Mindset for more content like this. Want to master the basics of accounting (for free)? Enroll in our email-based course: Financial Statements School Get started here (It's free) → https://lnkd.in/eKbRV7g6 If this post was helpful, repost it ♻️ to share with your audience.

10 Crucial Investing Ratios by Pieter Slegers - Give him a follow! 1️⃣ Gross margin (GM) 🎯 What? Company's gross profit compared to its revenue 💡 Formula? Sales - COGS / Sales 2️⃣ EBIT Margin 🎯What? What percentage of sales remains as profit before tax and interest 💡 Formula? EBIT / Sales 3️⃣ Debt-to-Assets 🎯What? The total amount of debt a company has relative to its assets 💡 Formula? Debt / Assets 4️⃣ Debt-to-Equity 🎯What? Ratio used to calculate a company's financial leverage 💡Formula? Debt / Equity 5️⃣ CAPEX/Sales 🎯What? Measures the capital intensity of a company 💡 Formula? Capital Expenditures / Sales 6️⃣ Return On Equity (ROE) 🎯What? Indicates how profitable a company is in relation to its equity 💡 Formula? Net Income / Equity 7️⃣ Return On Invested Capital (ROIC) 🎯What? Shows you how efficiently a company is allocating capital 💡 Formula? NOPAT / Total Inv. Capital 8️⃣ Earnings Per Share (EPS) 🎯What? How much money a company makes for each share outstanding 💡 Formula? Net Income / Shares Outstanding 9️⃣ Free Cash Flow Realization 🎯What? Measures how much earnings are translated into free cash flow 💡 Formula? Free Cash Flow / Net Income 🔟 Price-to-Earnings Ratio (P/E) 🎯What? Ratio that compares a company's share price to its earnings per share 💡Formula? Price Per Share / Earnings Per Share Follow Long Term Mindset for more content like this. *** P.S. Want to master the basics of accounting (for free)? I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English. Check it out here (It's free) → https://lnkd.in/eKbRV7g6 If you found this post useful, please repost ♻️ to share with your audience

Warren Buffett ALWAYS looks at Retained Earnings. Why? Here's a simple explanation of what they are and Buffett's 'rules of thumb". 🔹 What are Retained Earnings? Definition: Retained earnings represent the cumulative amount of net income a company has saved over its lifetime, after paying out dividends to shareholders. 🔎 Location on Balance Sheet: Listed under Shareholder's Equity. 🔢 Calculation: Retained Earnings = Previous Retained Earnings + Net Income - Dividends 🔹Importance of Retained Earnings Reinvestment: Companies often use retained earnings to reinvest in the business, funding growth, or debt reduction. Financial Health Indicator: A consistent increase in retained earnings generally indicates good financial health. Dividend Payments: It also serves as a source for dividend payments, which can attract and retain investors. 🔹Impact on Shareholder's Equity Equation: Shareholder's Equity = Assets - Liabilities + Retained Earnings. Influence: Higher retained earnings typically lead to a higher value of shareholder's equity. 🔹Management's Role Decision Making: Management decides how much profit to retain for future use and how much to distribute as dividends. Strategic Planning: These decisions are crucial for long-term strategic planning and financial stability. 🔹Examples of Use Growth and Expansion: Financing new projects or expansion plans Debt Reduction: Paying off existing debts to improve financial leverage. Stock Repurchase: Buying back shares from the market. 🔹Investor's Perspective Long-term Value: Investors often view high retained earnings as a sign of financial strength and long-term growth. Dividend Expectations: Conversely, a preference for dividends might lead to expectations of lower retained earnings. 🔹Fluctuations and Considerations Economic Cycles: Retained earnings can fluctuate with business cycles and company performance. Taxation: They are not taxed until they are distributed as dividends. 🔹Buffett's Retained Earnings 'Rule of Thumbs': - Investors should add treasury stock to Retained Earnings to neutralize the effects of stock buybacks. - Retained earnings should be a positive number - Retained earnings should grow, even during a recession Was this helpful? Was anything confusing? Let me know below! *** ➕ Follow Long Term Mindset for more content like this. Want to master the basics of accounting (for free)? Enroll in our email-based course: Financial Statements School Get started here (It's free) → https://lnkd.in/eKbRV7g6 If this post was helpful, repost it ♻️ to share with your audience.

13 steps to do Financial Analysis by Anders Liu-Lindberg - Follow him! It's one of the most basic disciplines of Finance. But how do you approach it from start to finish? Here's a 13-step process that should help you become a stellar financial analyst... 1. Financial statements Obtain the company's financial statements, including the balance sheet, income statement, and cash flow statement. 2. Business understanding Familiarize yourself with the company's industry, business model, and competitive position. 3. Clean and organize data Ensure that the financial data is accurate and consistent. Check for any errors or omissions. 4. Calculate ratios Calculate various financial ratios that are relevant to your company and can give insights into the financial health of the company 5. Analyze trends Examine the financial statements over multiple periods (e.g., quarterly or annually) to identify trends. 6. Benchmarking Benchmark the company's performance against its industry peers. 7. Assess profitability Evaluate the company's profitability by analyzing gross profit, operating profit, and net profit margins. 8. Evaluate liquidity Assess the company's ability to meet its short-term obligations by examining liquidity ratios. 9. Cash flow analysis Review the cash flow statement to understand the company's cash generation and utilization. 10. Recommend actions Based on your analysis, provide recommendations or insights. 11. Write report Document your findings and recommendations in a clear and concise report. 12. Present analysis If necessary, present your analysis to colleagues, clients, or superiors. 13. Update regularly Continuously monitor the company's performance and update your analysis as new data becomes available. Follow Long Term Mindset for more content like this. *** P.S. Want to master the basics of accounting (for free)? I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English. Check it out here (It's free) → https://lnkd.in/eKbRV7g6 If you found this post useful, please repost ♻️ to share with your audience

20 Types of Stocks - IPO Stocks - ESG Stocks - Safe Stocks - Value Stocks - Penny Stocks - Growth Stocks - Income Stocks - Secular Stocks - Cyclical Stocks - Dividend Stocks - Mid-Cap Stocks - Common Stocks - Preferred Stocks - Domestic Stocks - Blue Chip Stocks - Small-Cap Stocks - Large-Cap Stocks - Value Trap Stocks - International Stocks - Non-Dividend Stocks 11 major sectors of the stock market: - Energy - Utilities - Financial - Industrial - Materials - Healthcare - Real Estate - Technology - Consumer Staples - Consumer Discretionary - Communication Services Which types of stocks do you invest in? Let me know below! *** ➕ Follow Long Term Mindset for more content like this. Want to master the basics of accounting (for free)? Enroll in our email-based course: Financial Statements School Get started here (It's free) → https://lnkd.in/eKbRV7g6 If this post was helpful, repost it ♻️ to share with your audience.

The Universe of Financial Statements 🪐🌑☀️ Credit post to: Josh Aharonoff, CPA - Follow him! 🌌 THE PROFIT & LOSS This galaxy is filled with planets, asteroids, and moons all designed to tell you one thing: how profitable is your business It is separated by the following planets: 🌑 Revenue → your income 🌕 Cost of Goods Sold → the cost to deliver your income 🌕 Operating Expenses → the cost to operate your business 🌑 Other Income → income not related to your core business 🌕 Other Expense → expenses not related to your core business This galaxy brings us to what may be arguably be the most important planet in our galaxy… 🌍 Net Income → your net profitability… taking all income accounts, and subtracting all expense accounts But the constellations found in the galaxy of your P&L is just one part in the vast universe of Financial Statements… which brings us to what may be the most important galaxy of them all… 🌌 THE BALANCE SHEET This galaxy was orchestrated by the heavens to tell you one thing… What is the net worth of your business? It is separated by the following planets: 🪐 Assets → items of economic value that the business owns / substantially controls ⚫ Liabilities → amounts owed to creditors (hence it being a black hole!) 🌐 Owners Equity → amounts owed to the owners of the business Before you put your telescope away 🔭…don’t forget about one very important galaxy 🌌THE STATEMENT OF CASH FLOWS This galaxy…like the other galaxies…was orchestrated for one purpose… To explain where your cash is going each period 💰 Some scientists use their telescope to study this galaxy using the DIRECT method… while many scientists point their telescope to this galaxy using the INDIRECT method It is separated by the following planets: 🌘 Cash from Operating Activities → cash related to operating your business 🌘 Cash from Investing Activities → cash movements related to long term assets invested by the business 🌘 Cash from Financing Activities → cash movements related to funding the business As the saying goes…nothing in the universe happens by chance… and we are all CONNECTED. The financial statements are no different. Take a trip through a wormhole in the Profit & Loss, and you’ll find yourself traveling through space & time into the balance sheet... 🚀 Where Net Income will connect you to Retained Earnings Travel at the speed of light from the cash flows to the distant planets of both the P&L and Balance Sheet… Follow Long Term Mindset for more content like this. *** P.S. Want to master the basics of accounting (for free)? I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English. Check it out here (It's free) → https://lnkd.in/eKbRV7g6 If you found this post useful, please repost ♻️ to share with your audience

BALANCE SHEET ⚖ VS. CASH FLOW STATEMENT 📄 If you're in business, you MUST understand Financial Statements. Here's an overview of these two critical statements: ⚖ 𝐁𝐀𝐋𝐀𝐍𝐂𝐄 𝐒𝐇𝐄𝐄𝐓 ⚖ 👉 PURPOSE: Track what a company OWNS (assets) and OWES (liabilities) It shows a company's net worth at a point in time when using ACCRUAL accounting. ⏩ STARTS WITH: Cash Balance 3 Main Sections: 💰 ASSETS: What the company Owns 🔴 LIABILITIES: What the company Owes to creditors 🔵 EQUITY: The net value of the owner's claim ➗ FORMULA: Assets = Liabilities + Shareholder's Equity 🔀 SIMILAR TO: Your Net Worth statement ⏰ TIME: Point in Time Snapshot 🔢 ACCOUNTING: Accrual 📄 𝐒𝐓𝐀𝐓𝐄𝐌𝐄𝐍𝐓 𝐎𝐅 𝐂𝐀𝐒𝐇 𝐅𝐋𝐎𝐖𝐒 📄 👉 PURPOSE: Track Cash Movements It shows a company's profitability at multiple levels when using CASH ACCOUNTING. ⏩ STARTS WITH: Net Income (also called Profits or Earnings) 3 Main sections: 💰 CASH FROM OPERATING ACTIVITIES All of the cash flows from activities related to operating the business 💰 CASH FROM INVESTING ACTIVITIES The cash movements from long-term assets 💰 CASH FROM FINANCING ACTIVITIES The cash from all equity investments and debt from the company 🔀 SIMILAR TO: Your Checking Account ⏰ TIME: Period of Time 🔢 ACCOUNTING: Cash Which financial statement do you like better? Let me know in the comments section below! *** ➕ Follow Long Term Mindset for more content like this. Want to master the basics of accounting (for free)? Enroll in our email-based course: Financial Statements School Get started here (It's free) → https://lnkd.in/eKbRV7g6 If this post was helpful, repost it ♻️ to share with your audience.