Your Finance should be a source of Happiness

Finance is the backbone of a startup. If your finance is in order, then a big portion of you business is sorted out. It is imperative for any startup and its founder to have an overall idea and metrics one should be wary of. If finance is not properly managed, finance can give you a tough time. But don’t worry, In this article, we will guide you through some of the major aspects of corporate finance.

Financial Statements

Financial Statements are the formal record of a company’s financial activities and transaction. Financial Statements are used for auditing and evaluating a company’s valuation.

Balance Sheet vs Income Statement vs Cash Flow

The three major financial statements are balance sheet, income statement and cash flow statement.

Balance Sheet keeps records of assets and liabilities of an organization or person. A number of ratios can be derived from a balance sheet to monitor and asses the health of a company.

Income Statement is called a Profit and Loss statement. It is quite evident from the name itself that such a statement gives us information about the expenses of a company resulting in either profit or loss.

Cash Flow is the most intuitive financial statement. It keeps track of the inward and outward flow of cash in a business. It is based on three types of financial activities: operating, investing, and financing activities.

Break-Even Analysis

Break-Even Analysis is used for profit and value analysis. At the point of break-even, a total cost which is inclusive of fixed and variable cost becomes equal to total profit. Any sale after this point will result in profit. Breaking even is a crucial milestone for a startup.

Business Ratios

Cost Benefit Analysis

Cost Benefit Analysis aims to determine the benefit of incurring a cost for a new service/product/process in a quantitative or qualitative manner.

Liquidity Analysis

Liquidity Analysis makes use of various business ratios to determine the ability of a business to generate or convert cash from its assets in order to pay its bills. Liquidity is an important financial metric. Some of the ratios used in liquidity analysis is Quick ratio, current ratio, operating cash flow ratio.

Burn Rate

The rate at which a company is using its funds without generating revenue. It is a measure of negative cash flow. Burn rate should be monitored carefully else one may run out of business.

EBITDA Analysis

Ebitda stands for Earnings Before Interest, Taxes, Depreciation and Amortization. This metric is used to measure a company operating performance. It is important to note that since the capital structure is not taken into account, EBITDA should be used keeping its limitation in mind.

Operating Expense

Operating Expense (OPEX) is the expense that a business incurs to keep itself running. It is inclusive of wages, marketing, rent, insurance etc. One of the key motive of a business should be to reduct operating expenses without hampering the ability to compete.

Whats is CAPM?

Capital Asset Pricing Model is used to measure the rare of return of an asset.