Financial Analysis Techniques

How Financial Statements Work 👇 Did you know that all financial statements are deeply connected to each other? Understanding these connections has been one of the most impactful things in my career as a finance professional. When people start their finance journey, they often learn about each statement in isolation. But the real magic happens when you see how they work together. Let's break it down... ➡️ THE THREE FINANCIAL STATEMENTS Financial statements tell the complete story of a business from different angles: The Profit & Loss shows PERFORMANCE The Balance Sheet shows POSITION The Statement of Cash Flows shows MOVEMENT (You might also hear about the Statement of Changes in Equity and Notes to Financial Statements, but today we're focusing on the big three) ➡️ THE PROFIT & LOSS The P&L is the starting point. It tells you what you're generating in income vs what you're spending on expenses. It showcases profitability at different levels: - Revenue minus COGS gives Gross Profit - Gross Profit minus OPEX gives Net Operating Income - Add Other Income, subtract Other Expense to get Net Income The P&L is unique because it doesn't pull from other statements, though journal entries might be affected by your Balance Sheet. But here's where the connection starts: The P&L PUSHES your Net Income to both your Balance Sheet (via Retained Earnings) and your Statement of Cash Flows (via Cash from Operating Activities). ➡️ THE BALANCE SHEET The Balance Sheet shows the net worth of your business through three components: - Assets (what you own) - Liabilities (what you owe) - Equity (what's left for owners) It PULLS from the P&L via Retained Earnings. Many accounts overlap with the P&L through journal entries. The Balance Sheet then PUSHES information to the Statement of Cash Flows for most accounts except Cash, Accumulated Depreciation/Amortization, and Retained Earnings. ➡️ THE STATEMENT OF CASH FLOWS This statement shows how cash moves through your business, typically presented using the Indirect Method (because it's easier to prepare). Here's what's fascinating: The Statement of Cash Flows doesn't actually contain any new information. Everything can be derived from the P&L and Balance Sheet! It PULLS from: - P&L: Net Income, Depreciation, and Amortization feed into Cash from Operating Activities - Balance Sheet: Changes in balance sheet items from period to period The Cash from Operating Activities section pulls from changes in current assets/liabilities. The Cash from Investing Activities section pulls from changes in fixed, intangible, and long-term assets. The Cash from Financing Activities section pulls from changes in long-term liabilities and owners' equity. === Have you ever had an "aha moment" when you finally understood how these statements connect? What financial statement connection was most surprising to you? Share your thoughts in the comments below 👇

Nobody tells you film financing is actually  a stack of different deals. You imagine raising a budget means finding  one investor with a big check. I wish it worked that way. In reality, you rarely raise "the budget." You build a puzzle where every piece comes  from a different source, and every piece  has strings attached. Here are some of the most common ways films  get financed: 1. Presales A distributor pays upfront for release rights in  their territory. That contract can then be used as collateral  for a bank loan. 🟢 Pros: Money arrives early. 🔴 Cons: Those distribution rights are gone permanently. 2. Co-Productions Two or more producers from different countries  combine budgets, talent, and resources. Each partner can unlock funding opportunities  in their own territory. 🟢 Pros: Access to more financing. 🔴 Cons: Shared creative control and complex legal  structures. 3. Government Funds A public body invests directly through grants, soft loans,  or equity participation. 🟢 Pros: This is actual cash, not a tax mechanism. 🔴 Cons: Cultural requirements and, in some cases,  approval rights over elements of the project. 4. Tax Incentives Governments rebate a percentage of qualifying  production spend to attract projects. 🟢 Pros: Real money back. 🔴 Cons: It usually arrives after production,  not when cash flow is tight. 5. Gap Financing A lender advances money against territories that  haven't been sold yet. If presales cover 70% of the budget, a gap  lender may finance part of the remaining 30%. 🟢 Pros: Helps close the final financing gap. 🔴 Cons: It's usually the most expensive money in the  capital stack, often carrying interest rates of 8–15%. The key is to look at your project and ask:  Where does it fit? Sometimes it's the subject matter that makes it  eligible for a fund. Sometimes it's shooting in a location with strong  tax incentives. Sometimes it's finding the right co-production partner. Every film is a different puzzle. The job isn't finding one source of money. It's figuring out which pieces your project can  realistically unlock, and how they fit together. ♻️ Find this interesting? Repost for your network.   📌 Follow for more insights that spark big ideas.

Investing in early-stage #startups is risky. Thus, choosing the right financial instrument is important. Many #VCs don't invest directly as equity in startups, they use convertibles like warrants, options and convertibles to protect their risk. Let me substantiate. We'll use a hypothetical investment fund, "VC1," considering an investment in a startup, "Techstart." Hypothetical Scenario: Techstart #Valuation (Pre-Investment): $20 million. VC1 Fund Investment Amount: $2 million. Investment Options: [1] Investment with Warrants: - Warrants Issued: Right to purchase 10% of Techstart at the current valuation. - Strike Price for Warrants: 10% of $20 million = $2 million. [2] Investment with Convertible Note: - Convertible Note Terms: Convertible into 15% of Techstart if the company hits a $40 million valuation within the next three years. - Investment Amount: $2 million. [3] Investment with Options: - Options Issued: Right to purchase 5% of Techstart at the current valuation. - Strike Price for Options: 5% of $20 million = $1 million. - Options Cost: $200,000. Post-Investment Scenarios: [1]Scenario A: Techstart's valuation increases to $40 million within three years. [2] Scenario B: Techstart's valuation remains at $20 million. Mathematical Model: [1] Scenario A: Valuation Increases to $40 Million a)Warrants: Value of 10% after Increase: 10% of $40 million = $4 million. Profit: $4 million - $2 million = $2 million. b) Convertible Note: Convertible into 15% of Techstart: 15% of $40 million = $6 million. Profit: $6 million - $2 million = $4 million. c) Options: Value of 5% after Increase: 5% of $40 million = $2 million. Profit: $2 million - $1 million (strike price) - $200,000 (cost) = $800,000. [2] Scenario B: Valuation Remains at $20 Million a)Warrants: Potential Profit: Negligible, as the valuation hasn't increased. b)Convertible Note: Not Converted: Remains as debt. Return: Based on interest rate (assume 5% per annum) = $2 million * 5% = $100,000 per annum. c) Options: Potential Profit: Negligible or none, as the valuation hasn't increased and the cost of options is a sunk cost. Insights: [1] Scenario A (Increased Valuation): - Convertible Note: Offers the highest profit, assuming a significant increase in valuation. - Warrants: Provide substantial profit but less than convertible notes. - Options: Offer the lowest profit among the three, although still positive. [2] Scenario B (Stable Valuation): - #ConvertibleNote: Acts as a debt instrument, providing interest income. - #Warrants and #Options: Do not offer significant value if the company’s valuation does not increase. Conclusion: In a high-growth scenario (Scenario A), convertible notes offer the highest potential return, assuming the valuation target is met. In a stable or low-growth scenario (Scenario B), convertible notes offer fixed income through interest, whereas warrants and options may not provide significant value.

𝗛𝗲𝗿𝗲 𝗮𝗿𝗲 𝗲𝗶𝗴𝗵𝘁 𝘀𝗶𝗺𝗽𝗹𝗲 𝘀𝘁𝗲𝗽𝘀 𝗳𝗼𝗿 𝗖𝗙𝗢𝘀 𝘁𝗼 𝗺𝗼𝗻𝗶𝘁𝗼𝗿 𝗮𝗻𝗱 𝗮𝗻𝗮𝗹𝘆𝘇𝗲 𝘁𝗵𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀... You need to know your numbers. No one else will. But how can you best monitor and analyze the financials? First an overview of the eight steps to improve... 1. Establish KPIs 2. Financial reporting 3. Variance analysis 4. Financial ratios 5. Forecasting 6. Financial planning 7. Technology and Analytics 8. Financial reviews ---------- 1️⃣ Establish KPIs Identify and track key financial metrics that are relevant to the organization. These may include revenue growth, profitability margins, cash flow, ROI, and working capital ratios. Establish benchmarks and targets to assess performance. 2️⃣ Financial reporting Implement a robust financial reporting system that provides timely and accurate financial information. Regularly create financial statements, including income, balance sheets, and cash flow statements. 3️⃣ Variance analysis Perform variance analysis to compare financial results against budgets, forecasts, and prior periods. Identify and analyze the reasons for significant variances. Use variance analysis to identify trends, opportunities, and potential risks. 4️⃣ Financial ratios Utilize financial ratios and KPIs to assess financial health and performance. These may include liquidity ratios, profitability ratios, efficiency ratios, and leverage ratios. Monitor changes in these ratios over time and benchmark them. 5️⃣ Forecasting Develop financial forecasting models and conduct scenario analysis to project future financial performance. Assess the impact of different scenarios on financials, like market fluctuations, pricing changes, and legal shifts. 6️⃣ Financial planning Collaborate with the executive team on the development of long-term financial plans, budgeting processes, and resource allocation. Provide financial insights and analysis for strategic initiatives, investment decisions, and growth strategies. 7️⃣ Technology and Analytics Use financial technologies and analytics tools to enhance financial monitoring and analysis. Implement data visualization tools to present financial information. Explore advanced analytics techniques, such as predictive modeling and data mining. 8️⃣ Financial reviews Schedule regular financial reviews with the executive team and relevant stakeholders. Present financial performance reports, discuss key findings and address any questions or concerns. Provide financial insights and highlight risks and opportunities. ---------- I have used these steps many times with success to create tangible results and business leaders are eager for you to step in and get it done. Are you currently following these eight steps? Anything you'd add or change? #finance #cfo #accountingandaccountants #analytics 🎧 Listen to our #FinanceMaster Podcast here: https://bit.ly/3NLSt73 🧑🎓 Learn how we can help your finance team here: https://bit.ly/3prsWXH

Many companies don’t struggle because of profits. They struggle because of cash flow. Entirely preventable, but here’s the kicker: Too many leaders rely on historical metrics—net income, EBITDA, last quarter’s revenue—thinking they reflect financial health. They don’t. Because profit tells you where you’ve been. Cash flow tells you where you’re going. ➡️ Learn to analyze a cash flow statement in 10 steps and never miss another red flag again: https://lnkd.in/e2JXiUK6 ✔ Profit is a historical number. It tells you how the business performed—not whether it can navigate through what’s coming next. ✔ Cash flow is real-time financial health. It shows how money moves in and out, revealing whether you can meet obligations today. ✔ Forecasted cash flow is future strength. Because past performance doesn’t guarantee future liquidity. If you don’t know what’s coming, you’re flying blind. Here's why companies get this wrong: 1️⃣ They trust EBITDA instead of tracking real cash. → EBITDA strips out expenses like interest and taxes, but those bills still need to be paid. 2️⃣ They assume profit = cash in the bank. → Profit looks good on paper, but if revenue is tied up in receivables, you have no liquidity. 3️⃣ They don’t forecast future capital needs. → It’s not enough to know what happened last quarter—cash planning must include future payment obligations, growth investment plans, and economic shifts. Here's the right way to measure financial strength: 1. Operating Cash Flow → Are you generating real cash, or just showing paper profits? 2. Real Free Cash Flow → After investments, do you have excess cash, or are you overextending? 3. Cash Conversion Cycle → How long does it take to turn revenue into usable cash? 4. Debt-to-Cash Flow Ratio → Can you service obligations, or is debt outpacing liquidity? 5. Rolling 16-Week Cash Flow Forecast → Are you prepared for short-term risks, or just hoping for the best? The Bottom Line: ↳ Historical profit tells you where you’ve been. ↳ Current cash flow tells you where you are. ↳ Cash flow forecasts tells you your future. 📌 Make 2025 your best year yet and master financial leadership ↴ ▷ Enroll in my 5 on-demand video courses and save 50%+ with the bundle: https://bit.ly/4bTdu8T ▷ Join the April cohort waitlist for my 6-week Financial Intelligence Program: https://bit.ly/3ZCI0kr ♻️ Like, Comment, Repost if this was helpful. And follow Oana Labes, MBA, CPA for more.

After 23 years in FP&A, I’ve learned one thing… Forecasts don’t fail because of Excel formulas. They fail because of the habits behind them. I still remember when a CEO looked at my numbers and said, ‘Ehab, I can’t make decisions on this — I don’t trust it.’ That moment shaped the way I approach forecasting forever. Here are the 10 rules I live by: 1- Be realistic – hope is not a forecast. 2- Build from drivers – volumes, prices, headcount… not “last year + X%”. 3- Test every assumption – if it feels soft, dig deeper. 4- Talk to people – Sales, Ops, HR… they often know before the numbers do. 5- Plan for the worst – downside scenarios protect you from big shocks. 6- Separate profit from cash – you can have one without the other. 7- Keep it simple – if leaders can’t get it in 2 minutes, they won’t use it. 8- Refresh regularly – stale forecasts = bad calls. 9- Always know the story – numbers without a ‘why’ don’t stick. 10- Flag risks early – bad news now is better than a surprise later. A good forecast won’t predict the future. But it will give your leaders the clarity to act before it’s too late. If you’re in FP&A or business leadership — what’s the #1 forecasting habit you swear by?

What do rock legends AC/DC know about the US bond market? …they know the yield curve is “Back in Black” ⚡️🎸⚡️ As the chart shows, the US yield curve has been inverted since March 2022. Yesterday’s dis-inversion - and the yield curve moving back into the black - shouldn’t really surprise us. After all, short term bond yields have fallen quickly over the summer, as expectations for Fed cuts have grown. Traders now assume some 100bp of Fed cuts before the end of the year, and policy rates at 3.5% before the middle of 2025. What’s more, Powell’s recent speech - which shifted the Fed’s focus away from inflation and toward unemployment - has validated expectations for an imminent Fed and global rate cut cycle But the concerning thing here is that a dis-inverting yield curve, driven by bull steepening, is a robust leading indicator of recession. Even if the yield curve is just a “mirror”, reflecting the bond market’s best guess about future interest rates, it looks like an important cyclical change is underway as growth and labour market data cool quickly. That should put investors on alert, although a soft-ish landing remains our base case I still expect the yield curve to “structurally steepen”. But the most important thing to watch now is how far - and how fast- the curve steeepens. A gradual steepening toward a normal, say +50bp slope, would be fully consistent with a soft landing, and a broadening out pattern in stock markets. A more aggressive steepening would be a worrying reflection of a harder economic landing materialising … and that might leave investors “Thunderstruck” , or even on a “Highway to Hell” ⚡️🎸⚡️ #acdc #economy #investing

Mastering cash flow is crucial for financial health. By carefully integrating revolving debt into your cash plan, you can ensure liquidity and drive sustainable growth. Step 1: Define Key Parameters Begin by setting up the necessary inputs in your model: ➡️Maximum Revolver Limit: The maximum amount that can be borrowed at any given time. ➡️Interest Rate: The rate at which borrowed funds will accrue interest. ➡️Initial Cash Balance: Starting cash before any transactions. Step 2: Model the Cash Flows Project your operating cash flows, including all expected inflows and outflows. Make sure this reflects realistic scenarios over the forecast period. Step 3: Implement the Revolver Mechanism In your cash flow model, use these formulas to calculate revolver borrowing and repayments: ➡️Net Cash Flow (monthly): =Inflows - Outflows ➡️Cumulative Net Cash (end of month): =Previous Cumulative Net Cash + Net Cash Flow Step 4: Calculate Revolver Draws and Repayments Use Excel’s MIN and MAX functions to determine monthly revolver activity: ➡️Revolver Draw: =MAX(0, -Cumulative Net Cash) This formula ensures additional funds are drawn only when there is a deficit. ➡️Revolver Repayment: =MIN(Cumulative Net Cash, Previous Revolver Balance) This ensures any surplus cash is used to repay the revolver up to the existing balance. Step 5: Update the Closing Cash Balance Finally, calculate the closing cash balance considering the revolver activity: ➡️Ending Cash Balance: =MAX(0, Cumulative Net Cash + Revolver Draw - Revolver Repayment) This method will help you manage your cash flow efficiently and maintain liquidity. If you have any questions or need further clarification, feel free to reach out!

Good Budgets, Bad Budgets. If you are in corporate, and own a budget, chances are you are about to start the 2026 budgeting cycle. After spending over a decade building them, these have been my lessons to maximize success probabilities (unfortunately s%h£#¢t still happens): 👉 1. Align with your finance partner (if you are lucky to have one) ↳ Your relationship with your finance partner needs to be based on trust and mutual fair challenge, whilst be aligned on the principles for decision making. 👉 2. Define decision-making principles ↳ Will you build a budget that aims to over-promise (at the risk of under-delivering) or do you want to make sure that the budget is met, in which case you will likely need to under-promise. Find the right balance as you don't want to come across as a sand-bagger. 👉 3. Seek early-on guidance from your manager / Board ↳ Avoid getting inside a cave with your team for a month to reach an outcome, with no set course. Understand what people expect from you in 2026. 👉 4. Build your 'do nothing scenario' ↳ Draw accurate projections of your -business as usual- figures and identify how far these are from the expectations set on #3. If your baseline projections get you there, your higher up does not understand your area or is a sand-bagger. Either way, you got lucky. 👉 5. Layer your incremental bets for the year on top of your 'do nothing scenario' ↳ Build appropriate business cases for each of them, with sound sensitivity analysis. 👉 6. Identify risks and mitigations ↳ Ensure that the risks are quantified in € value. Identify potential mitigations and understand what you can do from today to reduce their likelihood of happening to 0%. 👉 7. Identify Opportunities ↳ Opportunities are different from bets. Opportunities are positive events that may happen without your direct intervention (i.e the exit of a competitor). Don't include them in your budget, but be mindful of them. 👉 8. Identify Dependencies ↳ If your budget achievement depends on other departments (e.g tech deliverables), make sure you seek proper hand-shake from your counter-part, and document the agreements. 👉 9. Lock-in the incentives system ↳Understand the budget rewards mechanics for you and your team. Ensure that these are fair and measurable on binary outcomes. Your main goal is, at a minimum, to hit the budget and ensure your team gets rewarded. 👉 10.Monitor progress against budget (once approved) ↳ Identify the main KPIs to monitor, and establish a review cadence. 👉 11. Course correct asap if your budget is deviating ↳ Identify the main KPIs and establish a review cadence. If budget deviates and no corrective action is taken, you are in the wrong place. These have been my lessons. I am yet to discover the extent to which these apply to budgeting in the start-up space. So far #1 has not been applicable 🤣 Do these resonate with you? Anything to add/remove? #budgeting #corporate