Buisness Bootcamp PGN

What is accounting? The process of recording organizing and reporting financial; activity.

Assets

Economic resources owned or controlled by an entity, such as cash, inventory, and equipment.

Liabilities

Financial obligations or debts owed to outside parties, such as loans and unpaid supplier bills.

Equity

The residual interest of the owners in a business, calculated as: $\text{Assets} - \text{Liabilities}$.

Accounting equation

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Revenue

Gross inflow of economic benefits earned from the sale of goods or provision of services.

Expenses

Costs incurred through day-to-day operations to generate earnings.

Net income

The bottom-line profit remaining after deducting all operating costs, interest charges, and taxes.

Income statement

A financial report summarizing top-line earnings, operating costs, and overall profitability over a designated time period.

Balance sheet

A financial snapshot displaying an entity's holdings, obligations, and net worth at a specific point in time.

Cash flow statement

A financial document detailing the movement of liquid capital into and out of an organization across operating, investing, and financing activities.

Accrual accounting

A method where revenues are recognized when earned and expenses are recorded when incurred, regardless of cash settlement.

Gross profit formula

$$\text{Revenue} - \text{Cost of Goods Sold (COGS)}$$

Operating income formula

$$\text{Gross Profit} - \text{Operating Expenses}$$

Net income formula

$$\text{Operating Income} - \text{Interest Expense} - \text{Taxes}$$

EBIT

Earnings Before Interest and Taxes; a metric representing operating profit before non-operational financing charges and tax obligations.

EBIT formula

$$\text{Revenue} - \text{COGS} - \text{Operating Expenses}$$

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization.

EBITDA formula

$$\text{EBIT} + \text{Depreciation} + \text{Amortization}$$

EBITDA GAAP classification

A non-GAAP metric that is excluded from standardized official accounting rules.

Gross margin formula

$$\frac{\text{Gross Profit}}{\text{Revenue}} \times 100\%$$

Operating margin formula

$$\frac{\text{Operating Income}}{\text{Revenue}} \times 100\%$$

Net margin formula

$$\frac{\text{Net Income}}{\text{Revenue}} \times 100\%$$

Current assets

Short-term economic resources expected to be converted to cash, sold, or consumed within one year, such as inventory and receivables.

Fixed assets

Long-term tangible property used in regular operations, including real estate, machinery, and equipment.

Debt-to-equity ratio formula

$\frac{\text{Total Liabilities}}{\text{Total Equity}}$; compares debt obligations with owners' equity.

Current ratio formula

$\frac{\text{Current Assets}}{\text{Current Liabilities}}$; measures short-term ability to pay obligations.

Retained earnings

Cumulative profits kept inside a firm for reinvestment rather than paid out to shareholders as dividends.

Ending retained earnings formula

$$\text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$$

Operating cash flows

Money generated or consumed through core operational activities, such as collecting receivables, paying salaries, and settling supplier bills.

Investing cash flows

Money spent on or received from purchases and sales of physical equipment, property, or financial securities.

Financing cash flows

Money received from or paid to equity holders and creditors, such as borrowing loans, issuing stock, or funding dividend distributions.

CapEx

Capital expenditures; funds allocated to purchase, upgrade, or extend the useful life of long-term physical property and equipment.

Operating cash flow adjustment: depreciation

Added back to earnings because it represents a non-cash deduction that reduced reported profit without consuming liquid funds.

Operating cash flow impact: accounts receivable increase

Results in a negative adjustment because recognized revenue has not yet been collected in liquid funds.

Operating cash flow impact: inventory increase

Results in a negative adjustment because additional liquid capital is tied up in purchasing or producing unsold goods.

Operating cash flow impact: accounts payable increase

Results in a positive adjustment because cash payments to vendors have been delayed.

Operating revenue

Earnings generated exclusively through an organization's primary line of business.

Recurring revenue

Predictable, ongoing income streams that repeat on a regular schedule, such as client subscriptions.

Non-operating revenue

Earnings originating outside core business activities, such as interest gained on bank deposits or investment dividends.

Non-recurring revenue

Unusual or isolated income resulting from exceptional events that are not anticipated to repeat.

Fixed costs

Expenditures that remain constant in total regardless of output or sales volume across a relevant operating range, such as warehouse lease payments.

Variable costs

Expenditures that change in direct proportion to the volume of output produced or goods sold, such as raw production ingredients.

Direct costs

Expenditures that can be specifically and cleanly attributed to the production of a particular unit, service, or project.

Indirect costs

Shared overhead expenditures that benefit operations generally and cannot be linked directly to an individual product, such as facility lighting.

Semi-variable costs

Expenditures comprising a baseline constant component plus an additional element that fluctuates with operational activity.

Manufacturing COGS formula

$$\text{Direct Production Costs} + \text{Allocated Manufacturing Overhead for Goods Sold}$$

Contribution margin formula

$$\text{Sales Revenue} - \text{Variable Costs}$$

Contribution margin per unit formula

$$\text{Selling Price per Unit} - \text{Variable Cost per Unit}$$

Deferred revenue

Upfront customer payments collected before products or services are rendered, classified on the balance sheet as an obligation.

Reason net income diverges from cash

Accrual rules recognize non-cash charges and uncollected sales, while omitting cash outflows like capital investments and debt principal repayments.

Core connection between the three financial statements

Net income transfers to the statement of cash flows and balance sheet equity, while the final cash balance transfers to the asset section of the balance sheet.

Net change in cash formula

$$\text{Operating Cash Flow} + \text{Investing Cash Flow} + \text{Financing Cash Flow}$$

Primary distinction between profit and cash flow

The former measures accounting earnings under accrual standards, whereas the latter tracks the physical arrival and departure of liquid funds.

Pizza shop scenario: fixed cost example

Monthly store lease payments, which remain identical whether one pizza or ten thousand pizzas are prepared.

Pizza shop scenario: variable cost example

Ingredients like flour, cheese, and pepperoni, whose total expenditure increases with every extra pizza made.