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Startup tutorial on financial basic2

The document provides a comprehensive tutorial on financial basics for startups, covering key financial statements such as the income statement, balance sheet, and cash flow statement, along with analysis techniques. It also discusses advanced financial ratios, budgeting and forecasting methods, valuation techniques like DCF and comparable company analysis, and the importance of capital structure in financing decisions. The content is designed to enhance understanding of financial management for startup founders and entrepreneurs.

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missiona.carla
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2 views

Startup tutorial on financial basic2

The document provides a comprehensive tutorial on financial basics for startups, covering key financial statements such as the income statement, balance sheet, and cash flow statement, along with analysis techniques. It also discusses advanced financial ratios, budgeting and forecasting methods, valuation techniques like DCF and comparable company analysis, and the importance of capital structure in financing decisions. The content is designed to enhance understanding of financial management for startup founders and entrepreneurs.

Uploaded by

missiona.carla
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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10/19/24, 7:42 AM Startup tutorial on financial basic

Intermediate Finance for Startups


1. Understanding Financial Statements in Depth

a. Income Statement

Components:

Revenue: Total sales generated.


Cost of Goods Sold (COGS): Direct costs associated with producing goods sold.
Gross Profit: Revenue minus COGS.
Operating Expenses: Costs not directly tied to production (e.g., marketing, salaries).
Net Income: Profit after all expenses have been deducted from revenue.

Analysis Techniques:

Common Size Analysis: Express each line item as a percentage of total revenue to facilitate
comparisons.
Trend Analysis: Evaluate performance over multiple periods to identify growth patterns.

b. Balance Sheet

Components:

Assets: What the company owns (current and non-current).


Liabilities: What the company owes (current and long-term).
Equity: Owner’s claim after liabilities are subtracted from assets.

Analysis Techniques:

Liquidity Ratios: Current Ratio and Quick Ratio to assess short-term financial health.
Leverage Ratios: Debt-to-Equity Ratio to understand financial risk.

c. Cash Flow Statement

Components:

Operating Activities: Cash generated from core business operations.


Investing Activities: Cash used for investments in assets.
Financing Activities: Cash received from or paid to investors and creditors.

Analysis Techniques:

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10/19/24, 7:42 AM Startup tutorial on financial basic

Free Cash Flow: Operating Cash Flow minus Capital Expenditures. Indicates cash available
for expansion or dividends.
Cash Flow Forecasting: Project future cash flows based on historical data and expected
changes.

2. Advanced Financial Ratios

a. Profitability Ratios

Operating Profit Margin: (Operating Income / Revenue) x 100. Measures operational efficiency.
Return on Assets (ROA): (Net Income / Total Assets) x 100. Indicates how effectively assets
generate profit.
Return on Equity (ROE): (Net Income / Shareholder's Equity) x 100. Measures how well equity is
used to generate profit.

b. Efficiency Ratios

Inventory Turnover Ratio: (COGS / Average Inventory). Indicates how efficiently inventory is
managed.
Accounts Receivable Turnover: (Net Credit Sales / Average Accounts Receivable). Measures
effectiveness in collecting receivables.

c. Leverage Ratios

Debt Ratio: (Total Liabilities / Total Assets). Indicates the proportion of assets financed by debt.
Interest Coverage Ratio: (EBIT / Interest Expense). Measures the ability to pay interest on
outstanding debt.

3. Budgeting and Forecasting Techniques

a. Zero-Based Budgeting

Definition: Start from a "zero base" and justify all expenses for each new period.
Implementation: Each department must justify its budget requests, promoting cost management
and efficiency.

b. Rolling Forecasts

Definition: Continuously updated forecasts that extend beyond the current budget period.
Benefits: Allows for more agile financial planning and responsiveness to market changes.

c. Scenario Analysis

Definition: Evaluate different financial scenarios (best case, worst case, most likely case) to
understand potential outcomes.

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10/19/24, 7:42 AM Startup tutorial on financial basic

Implementation: Create financial models that incorporate various assumptions about revenue,
expenses, and market conditions.

4. Valuation Techniques

a. Discounted Cash Flow (DCF) Analysis

Steps:
1. Project Future Cash Flows: Estimate cash flows for a specific period (usually 5-10 years).
2. Determine the Discount Rate: Use the Weighted Average Cost of Capital (WACC) as the
discount rate.
3. Calculate Present Value: Discount future cash flows to present value and sum them up.

b. Comparable Company Analysis (Comps)

Steps:
1. Select Comparable Companies: Identify businesses with similar models and market
conditions.
2. Calculate Valuation Multiples: Use metrics like Price-to-Earnings (P/E) ratio, Enterprise
Value/EBITDA, etc.
3. Apply Multiples: Apply the average multiples to your startup's financial metrics to estimate its
value.

5. Capital Structure and Financing Decisions

a. Understanding Capital Structure

Definition: The mix of debt and equity financing used by a startup.


Optimal Capital Structure: Aim for a balance that minimizes the cost of capital while maximizing
shareholder value

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