[How to Read Financial Statements] Learn from Zero Bookkeeping and Accounting Knowledge! Financial Statements Super Introduction Prologue
With rising prices continuing, further increases in raw material costs are expected, and small and medium-sized enterprises that struggle to pass these cost increases on to their selling prices are seeing a greater impact on their management.
In this note, I will provide practical content for "small and medium-sized business owners and new bank employees who want to use their company's financial statement figures as a tool for management improvement, but are struggling because they cannot quite understand financial statements."
Furthermore, the content posted here,is a significantly revised and remade version by the author himself of,the Japan's easiest to understand! "The・Financial Statement Drill" which was published in August 2007 and subsequently went out of print。
*For those who just want to know the overview, we have prepared an AI voice commentary.
"How to Read Financial Statements" Learn from Zero Bookkeeping and Accounting Knowledge! Financial Statements Super Introduction
Also highly rated by Certified Public Accountants!
Prologue
I had a friend who was a classmate working at an advisory tax accountant's office at the time. We had an exchange like this in the past regarding my company's financial statements...
Friend: "To do that... there is a method like this."
Me: "If you knew that... why didn't you tell me in advance?"
Friend: "..."
Me: "..."
Friend: "Because... it's not my job to teach you that in advance!"
It's a funny story now, but a tax accountant's job, unlike a consultant who supports management improvement, was mainly to prepare tax return documents and calculate taxes...
At the time, I was under the assumption that since they were looking at the company's numbers every time the accounts were settled, it was the tax accountant's job to give advice in advance to improve management...
Until I realized this, I had a strong feeling of "it's fine if I leave it to the tax accountant," and I was in a state of exactly "leaving it to the tax accountant" ... (*Currently, there are many tax accountants and accounting firms that also act as management consultants)
From there, I felt the need for business owners themselves to read and interpret financial statements and improve management, so I began to learn financial statements through self-study.
Actually, there are not many small business owners who can fully understand financial statements.
As I mentioned at the beginning, "financial statements" are "tax return documents", and their main purpose is "to calculate taxes".
Therefore, they are not written in a way that allows business owners to understand them even if they look at the "Profit and Loss Statement" or "Balance Sheet" right away.
It might be obvious when you think about it, but I believe that knowing this fact first is what is important.
I'm not trying to be defiant, but -- "doesn't that make you feel a little more at ease?"
Since they are tax return documents, even for the most distinguished business owners, there shouldn't beanyone who could read them fluently from the start,not a single person!
A certified public accountant who read my book wrote this in a book review.
"Tax accountants and certified public accountants were able to understand financial statements as a result of thoroughly studying bookkeeping and accounting"... he said.
But, business owners who have thoroughly studied bookkeeping and accounting are, after all, in the minority.
Actually, I didn't come to understand financial statements because I studied "bookkeeping and accounting" in depth either.
At first, while gradually understanding the meaning of fragmented numbers,as an improvement measure｢tactics｣I thought of and executed immediately.I also shared the "meaning of the numbers" and "concrete improvement methods" with all the employees.the "meaning of the numbers" and concrete improvement methods with them.
As I repeated that process, as a result, I myself became able to understand financial statements.
So, this time, for you who are struggling with the same problems I once had—I would like to share on note the content of the "one-on-one financial statement seminar" that I used to hold for business owners over a two-day schedule.
No matter how much time you spend on financial statements, if you get the "way of learning" wrong, you won't be able to understand them easily.
Therefore, so that you can learn smoothly and use it in actual practice immediately, I have included many exercises that are key points in understanding financial statements.
After learning this content, the knowledge that was scattered until now will begin to connect, and you should be able to understand "financial statements" systematically.
And, the ideas necessary for improving your own company's management will surely come to mind...
In addition, before proceeding to each section, please prepare your company's financial statements (Profit and Loss Statement, Balance Sheet) for the past 3 to 5 terms.
The numbers in "financial statements" are,if you calculate them yourself using a pen and calculator,,you will deepen your understanding even more!
*Section 1 "What is a Profit and Loss Statement?" and Section 2 "What is a Balance Sheet?" basic editions can be read for free. Please note in advance that Section 3 "Balance Sheet: Attack the Left and Move to the Right!" is paid content.
Section 1 "What is a Profit and Loss Statement?"
Table of Contents
1. What is Cost of Sales?
Visualizing Cost of Sales... / How to calculate Cost of Sales / What is Gross Profit? / What is a business with good gross margin? / What is the objective relationship between sales and gross margin? / Does profit increase when ending inventory is higher than beginning inventory? / Check your inventory! / Calculate inventory turnover ratio / What are variable costs? What are fixed costs?
2. Selling, General and Administrative Expenses
Personnel expenses that stand out by far! / Guidelines for personnel expenses / What are taxes and public dues? / What is depreciation? / What are fixed assets? / Items subject to depreciation / How is depreciation calculated? / Let's think about the mechanism of depreciation! / Depreciation is an expense with no cash outflow / What happens if you don't depreciate? / What are allowances? / What is operating profit? / Degree of power to earn from core business... Operating profit margin
3. What is Non-Operating Income?
What are important financial activities outside of the core business?
4. What are Non-Operating Expenses?
Check the interest rate on borrowings / Burden of interest payments / What is the interest coverage ratio... / What is ordinary profit? / Did you earn it from your core business? Did you earn it from outside your core business?
5. Extraordinary Income 6. Extraordinary Losses
What is profit before income taxes?
7. Corporate tax, inhabitant tax, and enterprise tax
What is net income for the current period? / Flow of money and flow of profit
essential point
Section 1↓↓↓
Section 2 "What is a Balance Sheet?" Basic Edition
Table of Contents
Simplifying the Balance Sheet... / The right side of capital changes into two major parts / From large numbers to small numbers! / Let's visualize the three large numbers / You don't have to be obsessed with the equity ratio! / The balance sheet eventually turns into five boxes / What is current... what is fixed? / Let's visualize the five numbers / Short-term is short-term... long-term is long-term / Current assets vs. current liabilities... is that really okay according to the textbook? / Fixed assets vs. "fixed liabilities + shareholders' equity" / Current ratio vs. fixed long-term suitability ratio... are two sides of the same coin! / Are assets listed in order of liquidity?
essential point
section2↓↓↓
section3 Attack the left side of the balance sheet and move to the right!
Table of Contents
1. Current Assets
Starts with cash... ends with cash! / How much money is needed every month? / Level of cash and deposits... / I want to increase my cash on hand! / Even if sales are recorded... it hasn't been converted to cash! Notes receivable and accounts receivable / Organizing the contents of trade receivables / Inventory that can be converted to cash... inventory that cannot! / Reducing inventory days / The aftermath of inventory (merchandise) window dressing... / Miscellaneous accounts and the actual balance sheet
2. Fixed Assets
Things that can be recovered... things that cannot: buildings and land / Are these fixed assets really necessary for the current business? / Organizing superficial assets...
3. Current Liabilities
Accounts receivable vs. accounts payable / Shortening the gap between payment and collection periods! / High-risk promissory notes! / Eliminating notes! / Cash that comes in late... short-term loans / "Money" and "expenses" not yet paid: accrued payables and accrued expenses / If you stumble here... there's no turning back! / Source of funds for loan repayment...
4. Fixed Liabilities
Money for capital investment... long-term loans / Depreciation expenses + net income after tax... do they become the source of funds for loan repayment? / Capital investment simulation / Is the loan amount high... or low?
5. Shareholders' Equity
The connection between the balance sheet and profit and loss from the perspective of depreciation / This doesn't mean there is cash here! ...Shareholders' equity / Deficits are the cause of insolvency... the importance of retained earnings! / The pipeline from profit and loss to the balance sheet... carried forward retained earnings / If you save on taxes... do carried forward retained earnings decrease!? / Profits accumulated so far... separate reserve funds / Where the profits go... / Profits... change into various accounts / You can understand the flow of money well by comparing the balance sheet over two periods! / The yardstick for small and medium-sized enterprises
essential point
Epilogue
section3↓↓↓
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