Financial Statements Primer

Audrey HicksCFO

Outdoor Research, Inc.

Why do I care?

Manage PeopleManage Money (Budget)

Other People’s Money (OPM)

You matterBe Responsible

What are Financial Statements?

• Income Statement = P&L = Profit and Loss• Activity based over a period of time• Year Ended December 31, 2013

• Balance Sheet• Value at a single point in time• December 31, 2013

Who makes the rules anyways?

The Gap?

GAAP

Generally Accepted Accounting Principles

Income Statement

Where does money come from?Revenue/Sales/Turnover = Selling Price or MSRP• Less discounts

Net Revenue• Less Cost of Goods Sold (COGS)Gross Margin-money I can spend• Gross Margin % (GM/Net Revenue)

Income StatementWhere does the money go?• Operating expenses/costs (OPEX)

– Payroll– Marketing/Tradeshow– Rent/Utilities– Travel

• EBITDA• Interest• Taxes• Depreciation/Amortization• Net Income/(Loss)

A Simple ExampleYE 12/31/13 % Net Sales

Gross Sales 1,000,000Discounts 5,000

Net Sales 995,000

Cost of Goods Sold 590,000

Gross Margin 405,000Margin % 40.7%

Operating Expenses:Personnel 150,000 15.1%Sales & Marketing 100,000 10.1%Facilities 30,000 3.0%Other 45,000 4.5%

Total OPEX 325,000 32.7%

EBITDA 80,000 8.0%Interest 8,000 0.8%Taxes 28,000 2.8%Depreciation 3,000 0.3%

Net Income 41,000 4.1%

Cash vs. ExpenseJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Monthly Pmt

Cash 417 417 417 417 417 417 417 417 417 417 417 417

Expense 417 417 417 417 417 417 417 417 417 417 417 417

One time Pmt

Cash 5,000

Expense 417 417 417 417 417 417 417 417 417 417 417 417

Accrual

Cash 5,000

Expense 417 417 417 417 417 417 417 417 417 417 417 417

Capital vs. Operating

Fixed/Capital Asset• Useful life greater than 1 year• Meets an internally set dollar amount $1,000-

$5,000• Depreciates over useful life-non cash charge• Matching of revenue and expenses over time

Balance Sheet

Assets (things I own or have future value to me):• Cash• Accounts Receivable• Inventory• Fixed Assets (Capital Assets)

Balance Sheet

Liabilities(things I owe):• Accounts Payable (bills I owe now)• Accrued Liabilities (bills I will owe later)• Bank Debt

Balance Sheet

Equity (investor/shareholder value):• Initial investment• Net Income

Put it all Together

Income Statement• Revenue

– COGS• Gross Margin

– Operating Expenses• EBITDA

– Interest/Taxes/Depr.• Net Income

Balance Sheet• Assets• Liabilities• Equity

– Initial Investment– Net Income

OIWC MENTORING

BUSINESS FINANCIALS

INCOME STATEMENT

MARGIN BUDGETS BASICS FOR COMPETENCY

PRESENTED BY

ALI SACASH-JOHNON

SALES=

Pricex

Quantity

COST of GOODSSOLD

GROSS PROFIT

=Sales

- COGS

OPERATING EXPENSES

PRE TAXPROFIT

INCOME TAX

NET INCOME

WHAT GOES INTO AN

INCOME STATEMENT OR P&L

MSRP WHOLESALE COST

GROSS MARGIN

MARK DOWNS

NET MARGIN

SG&A

CONTRIBUTION MARGIN

WHAT GOES INTO

MARGIN & PRICING

HOW TO LOOK AT

BUDGETS

ACTUAL BUDGET$ over/under %

over/underREFORECAST

BUDGET

P&L WHAT HAPPENED

WHAT THE PLAN

WAS

OFF BY HOW MUCH

+ / -

HOW WEADAPT

BASIC TIPS FOR

COMPETENCY

RETURN ON INVESTMENT

(R.O.I.)

VARIANCE PERCENT CHANGE(DELTA)

MORE ON HOW TO IMPROVE

HOW TO CALCULATE

RETURN ON INVESTMENT (R.O.I.)

( What you Earned - What you Spent )

What you Spent

X 100 = R.O.I. %

HOW TO CALCULATE

VARIANCE

ACTUAL BUDGET

(x 100) = %

ACTUAL

BUDGET

= $ VARIANCE

( NEW - OLD )

OLD

HOW TO CALCULATE

PERCENT CHANGE OR DELTA ( )

X 100 = %

ADVICE FOR YOU

HOW TO IMPROVE YOUR FINANCE SKILLS

1. TAKE A BUSINESS 101 CLASS

2. TAKE A MARKETING 101 FINANCE CLASS

3. THE BUSINESS OWNER’S GUIDE TO ACHIEVING FINANCIAL SUCCESS

- DAVID DURYEE

4. RETAIL MATH MADE SIMPLE

- DMS RETAIL